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Apple’s iPhone Sales Were Weak Because The Chinese And Big Businesses Love It (Huh?)

Apple’s iPhone Sales Were Weak Because The Chinese And Big Businesses Love It (Huh?)

Summary: You’ll get no shortage of not-100%-baked theories here at UberMobile. Here’s one where I argue that Chinese consumers and global enterprises are to blame for the blip in iPhone sales, but maybe not in the way you expect.

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Let’s keep a little perspective. Apple still sold 26 million iPhones in its fiscal Q3, up 28% year-over-year, worth $16.2 billion, up 22% year-over-year. The strongest challenger to the iPhone, Samsung’s Galaxy S III smartphone, has been sold 10 million times two months after launch, but that was after months of pent-up demand.

The normally overexcitable stock market is certainly keeping its collective head. As of mid-day, Apple’s stock is only down 5% on above-average trading. You’d think after what you read on Techmeme yesterday that AAPL would look like this:

 

shutterstock_18088084

 

China Syndrome

Some are blaming Europe for iPhone weakness. But if you’re going to point to a region, point to China, where sales fell 28% to $5.7 billion in Q3 from $7.9 billion in Q2.

 People forget that Apple hugely ramped up iPhone sales in China at the beginning of the year. It launched the iPhone 4S at Apple Stores in Beijing and Shanghai in January. January/February is when Chinese New Year occurs, when workers get their annual bonus (usually at least several months worth of pay) plus several weeks of vacation. It’s really the closest equivalent to Christmas, with lots of gift giving. And what better gift for a young urbanite than an iPhone?

Also, Apple officially began offering iPhones via a second carrier partner, China Mobile, at the end of Q2. With 129 million subscribers on its CDMA network, China Mobile is like the U.S.’s Verizon. As a result, its iPhone shipments in China in fiscal Q2 were up 5x year-over-year. Yes, 500%. And don’t forget that China is Apple’s second largest market in the world.

The net is that Apple’s iPhone comparables for Q3 vs. Q2 in China were impossible to match. But few analysts seemed to notice the China situation, despite Tim Cook openly talking about it.  

Virtually, all of the $2.2 billion sequential revenue decline, was due to iPhone sales in Greater China and about half of that $2.2 billion is attributable to changes in the channel inventory not the underlying sell through of the iPhone.

No, let’s blame the euro crisis or the housing market or Obama/the Fed because that’s trendier.

Enterprise Savvy

For my other argument, I’m going out a little on a limb, using circumstantial evidence, albeit what I consider strong evidence.

There is no doubt that enterprises are buying up iPhones. Not being brought in by BYOD – that’s more of a tablet/iPad phenom – but being bought up by IT and deployed as a standard device, often replacing BlackBerries.

For instance, Good Technology reported today that among users of its MDM software, the iPhone dominated Android, with 62% share vs. Android’s 37% share of smartphones.

good q2 ios android

 

Or as Cook said:

We estimate that the number of iPhones in the Fortune 500 has more than doubled in the past year…PepsiCo has deployed thousands of iPhones with an in-house app build specifically for their field merchandisers. This app has eliminated paper reports and provides real-time information to managers, sales teams and delivery drivers.

German insurance provider ERGO has built an in-house app for iPhone that thousands of agents use to process insurance claims, which has significantly reduced paper work and improved processing time and customer satisfaction.

 The good thing about enterprise deployments is that they are huge. The bad thing is that CIOs and IT managers are savvier than your average consumer (slap yourself on the back if you’re in IT). You know exactly when smartphones are introduced, and the effect of timing on refresh cycles and Total Cost of Ownership (TCO). And you are plugged into the rumor mill about the iPhone 5, as evidenced by your reading this and other blogs.

It doesn’t take that many Fortune 500 CIOs to wait for the iPhone 5 to cause enterprise iPhone sales to become unfavorably “lumpy” for Apple.  

Any readers working in IT who want to confirm or disconfirm that this entered into your decisionmaking about whether or not to deploy iPhones this quarter?

If this is a significant factor, I don’t think Apple would admit to it, as it would show a crack in the façade of broad enterprise embrace of the iPhone.

Still, I think the broad narrative holds true – enterprises are still embracing the iPhone. But as it becomes a significant segment for Apple, expect Apple to experience more seasonality in sales as enterprises try to time their buying and refresh cycles to gain maximum TCO.

Topics: UberMobile, Apple, Enterprise Software, iPhone, Telcos, China

Eric Lai

About Eric Lai

I have tracked technology for more than 15 years, as an award-winning journalist and now as in-house thought leader on the mobile enterprise for SAP. Follow me here at ÜberMobile as well as my even less-filtered musings on Twitter @ericylai

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10 comments
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  • They're probably waiting for Windows 8.

    Give it time.
    T1Oracle
    • Whose phone is that?

      There is no such thing as a "Windows 8" phone. There won't be even when Windows 8 is shipping. There will only be Nokia phones, and perhaps Samsung phones, and maybe Huawei phones.

      So which IT director do you think is going to bet his job on Nokia still being around next year? Hua what? That leaves Samsung. Samsung is leading the charge for Tizen, which grew out of their Bada effort. Would you bet your job that Samsung will remain committed to Windows Phone? Consumers don't have to care about that stuff, but IT directors do. Somewhere there's an IT Director who signed a purchase order for 1,000 Touchpads based solely on HP's reputation. Nobody wants to be that guy.
      Robert Hahn
      • he was being sarcastic

        I thought he had...
        HypnoToad72
  • Here we go again.

    I might buy that theory if we were talking about the iPad. But iPad sales were very strong, as we know.

    I can't imagine anyone thinking of smartphones and PCs as equivalent and/or cannibalizing each other.
    ericylai@...
  • Windows phone

    yay... I saw a small windows phone bar on the graph. This is awesome.
    I had my windows phone for almost two years now and it is great phone but it still wildly unpopular so even smallest bar in the graph is exciting. While android and iphone maniacs are at each other throats over 50 or 60% we windows phone users are happy with our 1-3%. I guess it means that windows phone users have more fun in life. They need 20-50 times less resources to be happy :)
    paul2011
  • Yeah if youre an IT person and you got iphones for your enterprise do NOT

    slap yourself on the back. You just made a terrible mistake and you need to shift any ongoing and or planning internal or outsourced lob mobile app building to W8/WP8 pronto. The worst thing you could do is move your enterprise into the apple ecosystem and building ios apps is a terrible step in that direction. Return those iDevices while you can get your money back or if it's too late try to dump them off on ebay before the next model makes them worth a lot less.
    Johnny Vegas
  • I just bought a Windows Phone

    The Lumia 900. Yes I know I won't be getting the latest OS upgrade when the next version ships but Im fine with that , I love the phone, will get the new one when it's out and give this to my girlfriend :)
    DJK2
  • It's about how you organize your people and your stuff

    Enterprises need multiple levels of security for groups that deal with contacts, trade secrets, business plans. Data transmission and storage must be encrypted whether it moves 100' or 1000 miles.

    Apple has no solution, Microsoft charges ramsom for your stuff.
    jnffarrell
  • Pretty biased commentary

    This article comes across with a strong fanboi slant despite the fact that total unit sale volume doesn't really matter.

    First of all, the numbers used are not apples to apples. iOS includes not just the iPhone but also the tablet and other Apple devices. When you look at phone sales, Samsung is now selling more than Apple not to mention other Android vendors. The author is very focused on explaining away sales volumes, but this is not a contest. If he is an Apple fan, he should be perfectly happy that he likes Apple products better whose sale volume may be lower because of a higher sales price. The unit volume does not mean one is better or worse.

    We are all hoping for a great battle of the players to drive innovation and better consumer products. The best outcome would be that volumes seesaw as multiple providers battle with features and price (and not patents).
    mbego
    • You talk about bias ... but ignore simple facts

      FACT #1- Samsung is currently selling more than 50 different models world wide. Apple sells just one new model (and two old).

      FACT #2- Samsung never releases numbers for SALES. It is always shipments. And last time they released the numbers, they bundle the earnings from ALL of Samsung's divisions into one. Meaning, the numbers released included the sales of the super cargo ships that they build.
      wackoae