Apple earnings: iPhone growth magnifies global smartphone potential

Apple earnings: iPhone growth magnifies global smartphone potential

Summary: Apple's strong iPhone growth in international markets offers a glimpse at the potential - and future competition - in global markets.

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Apple once again took Wall Street by surprise when it reported second quarter earnings that far exceeded any expectations of analysts and industry watchers. Revenues came in nearly $1.5 billion over what Wall Street forecast and earnings were 90 cents over. Growth in Mac sales was impressive - at 33 percent - and iPod Touch sales were even better, up 63 percent from a year ago.

But the darling of the earnings call on Tuesday was the iPhone, which saw a whopping 131 percent year-over-year growth in sales and 124 percent jump in revenue. Its numbers exceeded the records set during the previous quarter, a holiday quarter. And sales were also up more than three times the 41 percent that IDC projected for overall smartphone market growth for the quarter.

So where's the sweet spot for all of this growth? That would be the international market - for Apple, that's Europe, Asia Pacific and, yes, specifically China, which accounted for about $1.3 billion of the $5.45 billion for global iPhone revenue. On Tuesday's earnings call, COO Tim Cook said:

If you look in terms of the geographies, we had some staggering growth rates, as you mentioned. If you look at Asia Pacific as an example, the iPhone units in Asia Pacific grew 474% year-over-year. Japan grew 183. Europe grew 133. So these are some fabulous numbers we're seeing, just incredible demand for iPhone.

The momentum is there and Apple is feeding it, adding eight carriers in key countries, including the UK and Ireland, as well as others in Asia. In all, the iPhone is available with 151 carriers in 88 countries today.

The smartphone game is young, though, and Apple is only one player on the bigger field. Research in Motion, the maker of the Blackberry, also has its sights set on the international market and is gearing up for announcements of its own in the second half of the year. In its fiscal Q4 earnings call with analysts last month, RIM co-CEO Jim Balsillie said:

China represents an exciting opportunity for growth for BlackBerry and we have been moving forward with our plans to expand in the region... We continue to build our relationship with China Mobile and increase penetration across a broad range of verticals including financial, legal, banking, professional service and manufacturing. We look forward to announcing more details our plans in China in the coming months.

He also noted that prepaid subscribers continue to increase as a percentage of the subscriber base with Asia Pacific, Middle East and Latin America leading the way.

Related: RIM's Balsillie on Blackberry's future: What? Me Worry?

For now, RIM is still the No. 2 player worldwide and continues to see gains in market share, up 3.3 percent to nearly 20 percent in 2009, according to Gartner numbers for the year. But Apple isn't far behind, jumping more than 7 percent in the same period, and Google is also making some strong gains with Android, up about 3.5 percent for the year.

As for that No. 1 spot, Symbian and Nokia still maintain their strong leads. But that Gartner report from painted a grim picture in the face of competitive pressure from Apple and RIM. From the Gartner report:

In the smartphone OS market, Symbian continued its lead, but its share dropped 5.4 percentage points in 2009. Competitive pressure from its competitors, such as RIM and Apple, and the continued weakness of Nokia's high-end device sales have negatively impacted Symbian's share. At Mobile World Congress 2010, Symbian Foundation announced its first release since Symbian became fully open source.

Analysts expect Symbian^3 to reach the first devices by the third quarter of 2010, while Symbian^4 should be released by the end of 2010. Matthew Miller says the UI is as slick as any other smartphone UI and that it can power some of the "most functional devices on the planet." If only Nokia and Symbian can crack the North American market, too.

Finally, Google - along with Apple - represent the two fastest-growing operating systems internationally. Despite the wild card about the impact of Google and China relations, it's hard to ignore Android, as well. As an OS partnered with multiple carriers and device makers, Android has also made some gains. In last week's earnings call, Jeff Huber, senior VP of engineering, said:

Android is now powering 34 devices which is up 70% quarter-over-quarter from 12 different OEMs and over 60,000 Android devices are sold and activated every day. Our whole mantra with Android is “open.” First the Android OS itself is open for partners to modify and extend on their own. Then the Android market for apps is open for apps is open for all developers which is driving a lot of growth and great apps. We are now at over 38,000 apps, up 70% quarter-over-quarter. The net effect is to make web-ready Smart Phones more widely available. It is helping drive a lot of mobile search and apps usage.

That brings us back to Apple. With the stars aligned this way - and the market share percentages shifting and growing the way they are, it's no wonder that the U.S. and a deal with other carriers hasn't happened yet. On the call, Cook explained that Apple has exclusive carrier agreements in the U.S., Germany and Spain.

Yes, it's true that Apple has seen unit growth acceleration and improved market share in countries where the company has gone from having an exclusive carrier to multiple carriers - but, Cook said, "that doesn't mean the formula works in every single case."

Topics: Apple, Android, Banking, Google, Hardware, iPhone, Mobility, BlackBerry, Smartphones

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20 comments
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  • Good piece, Sam...

    It'll be interesting to see Nokia's results on Thursday and if their sales have been impacted by Apple's surge in their core markets of Asia and Europe.

    I think they will have but the question is by how much and how sustainable is it?
    Sleeper Service
    • My hunch is

      That Nokia is going to be collateral damage in a global RIM-Apple smartphone war. Nokia dominates markets like India, but you can see that eroding somewhat. It almost seems like the natural course of business.
      Larry Dignan
      • Not so sure about that...

        Nokia's presence is still very strong in Asia and Europe and likely to remain so for quite some time. Of course we'll know more when we get everybody's results and I do expect them to cede a bit of share based on Apple's numbers.

        I think the thing to bear in mind is that Nokia - and to a lesser extent RIM - offer a wide range of products pitched at a wide range of markets and price ranges. Apple do not which is obviously going to affect available share in the markets associted with the low to mid tier of smartphones.

        That said, I often think US based journalists underestimate the sheer entrenchment that Nokia have in markets outside the US where they're effectively a minority interest. From a European perspective I see Apple as currently dominant in one segment of smartphone sales - large screen touch driven units - but increasingly under threat from HTC's Android handsets and ultimately WinMo7 and Symbian^4 devices whereas RIM's main competition is the E Series which sells very well and comparitively to Blackberry outside the US.
        Sleeper Service
        • I can see that

          Agreed re the U.S. view of Nokia, but whenever I run into my ZDNet colleagues elsewhere around the world they often have nokia handsets. One tidbit from someone in India is that Apple is picking up as a sort of show-off sale. Apple's aren't cheap but their a nice status symbol. I'm thinking that Nokia at the very least will face some margin pressure on higher end phones going forward. We'll see. It'll take time to play out.
          Larry Dignan
          • I agree with that...

            ...Nokia lag in the high end segment and don't really have a compelling product to put against the iPhone or the Incredible/Desire/Legend at the moment.
            Sleeper Service
      • By the chart you show, Larry, Nokia fell by 6%...

        ... not necessary by losing sales, but rather by not growing them nearly as
        quickly as RIM, Apple and Android. Apple's growth seems to match
        Nokia's loss, while RIM or Android seem to have taken WinMob's. When
        you consider that the overall growth was roughly 24% and the iPhone,
        Blackberry and Android alone can account for 14 of that percentile in
        simple growth, it becomes obvious that Symbian needs to find a way into
        new markets, or revitalize its existing markets. And what with Apple
        showing the largest single growth of that listing, we can only hope
        Nokia/Symbian can make the change effectively.
        Vulpinemac
  • Good Review

    Raises a couple of questions in my mind...

    1) will symbian continue to rest on its laurels or will it step up with some really cool OS update

    2) what will be the impact to this picture when WMob 7 launches

    This won't affect my future choice in phones but should make for interesting reading...

    Thx
    rhonin
  • A thought...

    ...how did iPhone sales do in the US? A lot of the growth seems to be in Europe (presumably increased sales on current carriers and new carrier expansion) and new markets in Asia.

    Would be interesting to see AT&T's iPhone figures when their results come out.
    Sleeper Service
  • RE: Apple earnings: iPhone growth magnifies global smartphone potential

    Wow! Apple is ripping it up.
    jkanarowski
  • "Finally, Google..."?

    A platform with over 30 devices, and who targeted worldwide from the start, merely merits a "finally" from you, Sam, almost as an afterthought? I think you're underestimating Android's - and Google's - potential.

    Android, in its FIRST year, began adding international markets almost right away (I know this because I'm an Android app developer and get the news). I don't even know the number of other countries other than the U.S. they're marketing to, but it's a lot. And more are coming. Google has very deep pockets.

    I would imagine that Apple's looking at world markets with the iPhone now because they're worried about being tapped out on American shores (that, and their investors want to continue to see meteoric growth). I think Apple will be surprised just how long Android's been in non-American markets, though.
    chas_2
    • While I do agree that Android has potential

      and might wind up outselling the iPhone (provided Steve Jobs and Co keep putting restrictions on the device) I do want to point out that Apple has been selling the iPhone in an interational market for quite some time now - I have a cousin who lives in Greece who bought her iPhone 2G there... can't recall the telco unfortunately... Your comment seemed to read that Apple is just now looking into that market.

      Based on the sales and market share figures I see the top 3 international as being RIM, Apple, and Android unless Nokia pulls something extraordinary out of their hat and Windows Phone 7 (or whatever it is being called this week) does well. All in all it will be interesting to see.
      athynz
    • I might agree with you, chas...

      ... but concurrent with that growth, I'm reading reports that where the
      iPhone and Android can be used side-by-side, Android doesn't
      necessarily perform as well next to the iPhone. As long as Apple
      maintains its exclusivity with AT&T, Android stands a real chance of
      being more than just a competitor, but if Apple opens up (which seems
      possible with the shift to MiniSim cards) or AT&T can finish its network
      upgrades and activate them, then the iPhone may suddenly grow into
      markets where it simply can't compete right now.

      Either way you look at it right now, Nokia and WinMob seem to be
      taking the biggest hits in share at the moment; we'll just have to keep
      watching.
      Vulpinemac
    • Nonsense

      "I think Apple will be surprised just how long Android's been in
      non-American markets, though."

      Nonsense, ANY major player in smartphones (as in ANY other
      product line) knows exactly what and for how long any
      competitor has been doing, in domestic and foreign markets--
      how could you possibly imagine otherwise? These companies
      don't have the success they do by not being fully aware of
      competitive capabilities and market penetration, anywhere.

      As far as Apple, they have been in international markets with
      ALL their product lines for a very long time, including iPhone
      from the first year--and they also have over $24 billion in
      cash. All this is easily available data, if you just take a look...
      frabjous
  • Famous quote from Tim Cook...

    ..." "I can't think of a single thing the netbook does well. And iPad does so many things very, very well that I'm already personally addicted to mine and couldn't live without it.""

    Well Timmy Boy...I can PRINT from my netbook. Can you print from your iPad? The answer is NO.

    Does your Wi-Fi iPad have GPS? Once again...the answer is NO.

    Can you play Flash based games, or access Flash based web sites such as online banking sites? Once again...the answer is NO.

    Can you watch widescreen movies in 16:9? Once again...the answer is NO.

    Can you store more that 64GB of data...such as video and photos? Once again...the answer is NO.

    Install programs or view content from CDs or DVDs? Once again...the answer is NO.

    And then there are these...

    http://www.liberatemedia.com/blog/10-professional-things-you-can%E2%80%99t-do-with-an-apple-ipad/

    So Timmy...I'll stick with my crappy old netbook for just a little while longer.
    IT_Guy_z
    • Interesting rant

      but this post deals with the marketshare of the iPhone in the international market not the ipad vs netbook war you fanbois want to wage.
      athynz
      • It has to do with what Tim Cook (Apple COO) said during the earnings call.

        As shown in this article:

        http://www.theregister.co.uk/2010/04/21/ipad_lowering_apple_gross_margins/
        ths40
        • Still doesn't matter...

          ... the argument does not belong in this particular thread. Take it to a
          thread that discusses the iPad specifically.
          Vulpinemac
    • What the Hell are you talking about?

      Just wondering is all...
      www.dfwsupergeek.com
      unclefixer@...
  • Give me a break!

    The growth is due to short year earnings from previous years on areas where the iPhone was not yet marketed. Talk about spin. I hope investors don't fall for this bullhockey!

    Overal cellular growth for every cell phone maker is just about the same in many areas too.
    Narg
  • is there that much porn on Android to get Jobs to play pope?

    I still don't get it: what's so "porn" about the
    Android OS specifically that would warrant Apple's
    CEO to make a public snide comment? Is Android
    App store full of porn apps? Really?
    Alex Gerulaitis