Apple iPhone: 19% of shipments, 51% of revenue, 87% of profit

The latest numbers from market research firm Strategy Analytics reveal just how much Apple dominates the global smartphone market in the areas where it really matters.

As Apple’s latest numbers showed, even whacking up the price of its latest phone to a grand didn’t stand in the way of it selling a ton of them. The result was the kind of revenues and profits that most countries would be delighted to receive, but the sheer enormity of Apple’s financial performance is put into full perspective when compared to the rest of the global smartphone industry.

According to SA Apple’s 19% share of global smartphone shipments in Q4 2017 translated to 51% of all revenues. In other words everyone else added together – Samsung, Huawei, etc – had to make do with less than half of the total amount spent on smartphones around the world. But the killer stat – coerced out of SA just for us because we’re such great mates – is profit. Apple captured a scary 87% of all global smartphone operating profits in Q4 2017.

“We estimate Apple iPhone captured a record 51% share of all smartphone wholesale revenues worldwide in Q4 2017,” said Neil Mawston of SA. “Apple iPhone generated a huge US$61 billion in the quarter, helped by solid demand for its premium X model, and Apple now accounts for more revenue than the rest of the entire global smartphone industry combined.

“Apple generated three times more smartphone revenue than nearest rival Samsung and 7 times more than Huawei. Apple iPhone’s average selling price is approaching US$800 and almost three times higher than the overall industry average. Apple iPhone is an incredible money-making machine.”

How incredibly depressing for Apple’s competitors, especially when you consider that the main beneficiary of every Android smartphone sale is Google, while Apple also controls its own mobile ecosystem. Here’s the SA table showing how the crumbs off Apple’s table are distributed.

SA smartphone revenue Q4 2017

Du profit jumps 15% on increased postpaid share and efficiencies

UAE operator group Du managed to post a healthy jump in profits in Q4 2017 thanks to increasing its number of high-value subscribers.

Net profit after royalty (which seems to mean payments to the state in some form or other) jumped 14.9% year-on-year on revenue that remained pretty flat, implying a fairly significant margin improvement. There don’t seem to have been any significant one-offs so the increased profit seems to just be down to doing things better.

“The successes achieved last year are an indication that the strategic transformation our company has undertaken is enabling us to adapt to the evolving industry and accommodate the changes in customer and business behaviour,” said Ahmad Bin Byat, Chairman of EITC (the proper name for Du). “Our strategic goals have the UAE at their core, contributing to the nation’s sustainable growth through digital transformation. During 2017 we made good progress in this regard, having developed the Dubai Smart City platform, now fully operational, with core infrastructure in place and delivering.”

Commenting on the results, Osman Sultan, EITC’s Chief Executive Officer, said:

“Looking at our financial performance, I am pleased to report a record Revenue of AED 13 billion for 2017, representing a 2.2% increase over 2016,” said Osman Sultan, EITC’s CEO. “This comes as we continue to attract higher quality customers resulting in a 12.3% growth in our post-paid segment during the year, stimulated by our increased focus on that segment. Revenue growth was also supported by a solid performance in our fixed line business.

“Net Profit after Royalty had an excellent growth quarter on quarter, up 14.9% in Q4 2017 to AED 425 million, which helped maintain a stable annual Net Profit after Royalty of AED 1.71 billion, recovering from a weak quarter in Q1 2017. Growth was supported by the increase in revenue, improvement in gross margin and the impact of our cost optimisation programme. EBITDA margin is solid at 40% for the year.”

The Middle East has been one of the parts of the world where telecoms investment has seemed to remain buoyant as it tails off in North America and Europe. Some of this could be as a result of sovereign wealth funds moving away from areas that have failed to live up to expectations, such as construction, but the region also seems to see 5G as a broader economic strategic opportunity, so it wouldn’t be surprising to see this investment continue and for the region to be a global test-bed, to some extent.

Canalys reckons Apple Watch shipments exploded in Q4 2017

Estimates from research firm Canalys put the number of Apple Watches shipped in Q4 2017 at 8 million, which is apparently more than the entire Swiss watch industry.

Apple doesn’t break out its Apple Watch shipments publicly, so these are only estimates, but probably good ones as that’s Canalys’ day job. Furthermore there seems to be some consensus with IDC tweeting similar vibes ahead of publishing its hard estimates. Either way it looks like the latest version of the Watch is gaining some momentum.

“The cellular version of the Apple Watch was in strong demand in the US, Japan and Australia, where all major operators stocked it in time for the holiday season,” said Vincent Thielke of Canalys. “But limited operator selection in the UK, Germany and France influenced consumer purchase decisions, and stifled the growth potential of the connected Apple Watch. Moving into new markets, such as Singapore and Hong Kong in Q1 2018, just in time for Chinese New Year, is a good move.”

Business Insider had a look at the claim made in the IDC tweet about the Swiss watch industry and its official source of data, which seems to indicate Q4 2017 exports of Swiss watches in the region of 6-7 million. There are, of course, other sources of conventional watches but Apple does seem to be aiming more towards the luxury end.

What to read into this trend, however, is far from clear. It’s not known to what extent the most recent shipments were influenced by operator bundling, nor how much more seasonal smart watch sales are than conventional ones. Furthermore Swiss brands such as Rolex tend to be very expensive and so should be expected to sell in lower volumes.

The Canalys chart for the full year is below, which implies 100% of the Apple Watches shipped in Q4 were the new series. It’s interesting to note some traction for the modem-enabled ones since it’s unlikely many users will leave the house without their phone anyway, unless they’re going for a run.

Canalys 2017 Apple Watch

Apple revenue jumps in spite of declining volume thanks to the iPhone X

US gadget giant Apple delivered another obscene set of quarterly numbers, which indicate the high price point of the iPhone X has not put loyalists off.

Q4 2017 iPhone shipments were down 1% year-on-year, despite one of the most significant Apple product launches in years taking place just before the start of the quarter. Under normal circumstances this would be a minor setback for Apple, but at the same time its iPhone revenues were up 13%.

Apple is all about margin. It has dominated the premium end of the consumer tech market for years and has never had any difficulty persuading its customers to pay a significant premium for technology with debatable superiority. But when the iPhone X was launched a lot of people thought the four-figure price point might just be a step too far, even for its notoriously profligate punters.

Apparently not. Quarterly revenue of $88.3 billion yielding net income of $20.1 billion, up from $17.9 billion a year ago is not a bad performance at all. To put that in perspective Google and Amazon both had great quarters, but Google’s net income (if you ignore the one-off tax charge) was around a third of Apple’s and even with a one off tax boost only managed net income of $1.9 billion. In other words Apple increased its profit by more than Amazon’s entire profit.

For Apple to increase its revenues while selling fewer units it must have significantly increased the iPhone average selling price (ASP), which must surely be down to the iPhone X. This is consistent with some early data on the global smartphone market.

“We’re thrilled to report the biggest quarter in Apple’s history, with broad-based growth that included the highest revenue ever from a new iPhone lineup. iPhone X surpassed our expectations and has been our top-selling iPhone every week since it shipped in November,” said Tim Cook, Apple’s CEO. “We’ve also achieved a significant milestone with our active installed base of devices reaching 1.3 billion in January. That’s an increase of 30 percent in just two years, which is a testament to the popularity of our products and the loyalty and satisfaction of our customers.”

Apple also managed to take the number one global smartphone shipment spot back from Samsung, which isn’t unprecedented for Q4. You can see our latest vendor summary below, which also reveals a significant global drop-off in smartphone shipments. If anything this makes Apple’s performance even more impressive since it suffered less of a volume fall than its main competitors.

“Global smartphone shipments declined 9 percent annually from 438.7 million units in Q4 2016 to 400.2 million in Q4 2017,” said Linda Sui, analyst at Strategy Analytics. “It was the biggest annual fall in smartphone history. The shrinkage in global smartphone shipments was caused by a collapse in the huge China market, where demand fell 16 percent annually due to longer replacement rates, fewer operator subsidies and a general lack of wow models.”

“Despite robust iPhone X demand and an iPhone average selling price approaching an incredible US$800, we note global iPhone volumes have actually declined on an annual basis for 5 of the past 8 quarters,” said Neil Mawston, Analyst at SA. “If Apple wants to expand shipment volumes in the future, it will need to launch a new wave of cheaper iPhones and start to push down, not up, the pricing curve.”

It doesn’t look like Apple is bothered about volume – certainly not at the expense of margin, anyway. Android ASPs are a fraction of Apple’s and there will be nothing in its latest numbers to persuade Apple it needs to play in the lower tiers. Furthermore there has always been significant danger of damage to Apple’s premium brand in it offers budget products and the potential returns just don’t seem good enough to justify that risk.

Smartphone shipments Q4 2017

More gloom for Ericsson – sales down, shares down, media unit sale fudged

It was yet another tough quarter for networking giant Ericsson, with sales down 12% and an unsatisfactory conclusion to the strategic review of its media business.

Sales were down by a rather worrying 12% (7% when adjusted for adjustments), although Ericsson says that was expected. Much of the blame has been placed on reduced sales of LTE gear in mainland China. There was also the big write-down Ericsson warned us about a few weeks ago. Here’s the Q4 2017 summary table and we challenge you to find the highlight.

Ericsson Q4 2017 table

“The fourth quarter was in line with our overall expectation, with gradual improving performance in Networks and continued significant losses in Digital Services,” said Börje Ekholm, Ericsson CEO. “The result is however far below our long-term ambition. For 2018, the Radio Access Network (RAN) equipment market is expected to decline by -2%, compared with estimated -8% in 2017. The Chinese market is expected to continue to decline due to reduced LTE investments, while there is positive momentum in North America.

“Segment Networks showed stable performance with the ramp-up of Ericsson Radio System (ERS), representing 71% of radio unit deliveries in the quarter, and efficiency gains in service delivery as key drivers. Networks adjusted gross margin increased to 36% (32%) YoY and the success of our 5G-ready portfolio continues. In the quarter, we made deliveries related to our market share gain in Mainland China and we signed several break-through contracts, including with Verizon and Deutsche Telekom.

“Segment Digital Services had another challenging quarter with significant losses, mainly due to higher costs in ongoing large transformation projects. As previously communicated, our turn-around plan builds on stability, profitability and growth – in that order. The initial focus has been on stabilizing both product roadmaps and challenging customer contracts. We have identified 45 critical or non-strategic customer contracts and the plan is to complete or exit approximately half of these contracts in 2018. The actions to improve profitability in Digital Services are expected to generate positive effects on gross margin in the second half of 2018.

“The refocus of Managed Services to improve profitability is underway, with 23 out of the 42 under-performing contracts completed, resulting in an annualized profit improvement of SEK 0.5 b. As a result of these efforts, the underlying gross margin improved slightly QoQ. One-time effects and seasonality in operating expenses impacted operating income negatively.

“For our Media Solutions portfolio, reported in segment Other, we have executed on a profit improvement program while continuing to invest in the product offering. This has significantly improved operating performance during the year, thereby improving our strategic flexibility as we have completed our strategic review of the business. We have evaluated various options including partnerships, divestments and continued in-house development, with the objective to maximize shareholder value.

“We have decided to partner with One Equity Partners (OEP) to further develop the Media Solutions business through retaining a 49% ownership stake. This allows us to capture the upside of the business while at the same time taking active part in the expected consolidation of the industry. We have decided to keep Red Bee Media (former Broadcast and Media Services) as the bids received did not reflect the value of the business. We will develop the business as an independent entity within Ericsson, building on the improved operations.”

So the conclusion of Ericsson’s big strategic review of its media unit is to sell 51% of the ‘media solutions’ (i.e. broadcast and media hardware) to private equity, thus relinquishing control of it while still retaining substantial risk (and potential upside, it should be said). Red Bee Media is the rebranded broadcast services bit and it looks like Ericsson just couldn’t find any buyers at almost any price, so it’s stuck with it.

Lastly it wouldn’t be an Ericsson announcement without a bit of a reshuffle. This time it involves the creation of a new ‘business area’ called Emerging Business, which seems to be all about exploring new business opportunities in the areas of IoT and distributed cloud solutions. To head the unit up Ericsson poached Åsa Tamsons from McKinsey’s, where she was previously partner at its Stockholm office.

Meanwhile Ekholm’s purge of the old guard continues with Ulf Ewaldsson losing his job as head of Business Area Digital Services, which had another bad quarter, and will now just be Advisor to the CEO. The Ericsson release says Ewaldsson ‘decided to step down’, but Ekholm’s last two advisors – Jan Frykhammar and Magnus Mandersson lasted just eight months before the decided to pursue other opportunities.

Clearly the Ericsson work in progress continues. One result of this constant purging, reviewing and streamlining must surely be that Ekholm at least has a clearer picture of the task in front of him. At MWC 2017 Ekholm was able to duck the matter of the grand plan to turn things around but he won’t have that luxury this year.

He would presumably like to have better numbers to talk about at Ericsson’s traditional first-morning press event but, regardless, he has to try to demonstrate how things are going to improve. Even if the plan is just to continue downsizing until 5G ramps up then he probably needs to admit it if he wants to avoid further share price shocks such as the 8% loss of the value of his company that had happened at time of writing this article.

Q4 2017 global smartphone sales value spiked thanks to the iPhone X

A couple of early looks at the Q4 2017 global smartphone market indicate the iPhone X sold well and dragged the average selling price up with it.

GfK, which derives its data from point-of-sale terminals, reckons global ASPs experienced a record spike in Q4, growing 11% year-on-year. This trend seems to have been driven mainly by Europe and Asia, with Central and Eastern Europe ASP jumping 28% and Western Europe seeing the average sale value increase by 17% despite a 3% decline in sales volume.

“Smartphone year-on-year demand growth moderated for the fourth consecutive quarter, rising only one percent to 397 million units in 4Q17,” said Arndt Polifke, Global Director of PoS telecom research at GfK. “However, sales value increased by 11 percent year-on-year in the quarter, which is exceptional growth for such a mature technology category. This came as the proliferation of smartphones with larger and bezel-less displays incentivized consumers to purchase more expensive devices.”

“The outlook for 2018 is positive as GfK forecasts global smartphone demand to rise by three percent compared to 2017, driven by Emerging Asia and Central and Eastern Europe,” said Yotaro Noguchi, product lead in GfK’s trends and forecasting division. “With saturation in developed markets, consumer retention will be a key focus for smartphone makers, which, alongside increased commoditization, will encourage greater innovation and differentiation in order to spur sales.”

GfK Q4 2017

GfK didn’t comment on vendors but it can’t be a coincidence that Q4 2017 also marked the first time the £1,000 iPhone X went on sale. Yes, there are other expensive flagship smartphones out there too, but that was the biggie. Some early vendor numbers from Canalys, which derives its data from further up the smartphone channel, indicate Apple managed to flog a nice lot of Xs – 29 million to be precise.

“The iPhone X performance is impressive for a device priced at US$999, but it is slightly below industry expectations,” said Ben Stanton, Analyst at Canalys. “Apple struggled with supply issues in early November, but achieved a massive uplift in production in late November and throughout December.

“This helped it meet and even exceed demand in some markets by the end of the quarter. One major benefit to Apple is that customers are increasingly realizing the residual value of their old smartphones, opting for trade-in programs to offset the high price of the iPhone X. But that big price tag, and Apple’s split launch strategy, still had an impact, and shipments were not the fastest ever for an iPhone.”

It should be noted that Apple has yet to publish its shipments numbers and doesn’t publicly break them out by model. One of the main roles for industry analysts is to be better guessers than everyone else, so this Canalys datapoint needs to be treated as guidance rather than definitive. Having said that history has shown that large numbers of people with find the money for the latest Apple shiny thing, regardless of the price tag, so there’s no reason to wholly distrust the 29 million figure.