Apple's latest iPhone sales suggest the company isn't meeting industry expectations despite "record" numbers, but the iPhone maker insists China is a growth market that's about to explode, bringing with it great fortunes for Cupertino. If that fails, solar energy may be what Apples needs to put the "i" back into innovation.
Apple on Monday reported a net income of US$13.07 billion and revenue totaling US$57.59 billion for its fiscal 2014 first quarter, with earnings of US$14.50 per share. While these numbers mostly beat Wall Street estimates, its iPhone sales of 51 million units for the quarter was short of the expected 55.3 million. This despite Apple declaring it clocked "record" quarterly iPhone sales, compared to 47.8 million in the same quarter the year before. It also saw "record" numbers in iPad sales which hit 26 million, up from 22.9 million in the same quarter 2013.
In their conference call with analysts, Apple CEO Tim Cook and CFO Peter Oppenheimer dismissed suggestions their iPhone numbers fell flat, blaming instead a shortage in supply of the iPhone 5s and U.S. telcos' upgrade policy changes.
China the apple of Apple's eye
Cook also pointed to China as the company's bright spot, one that's on the cusp of showing the real numbers. Just one week into the January 17 launch of its China Mobile deal, the CEO said it had been "the best week [Apple] has ever had for activations in China". "One of the most important things in the iPhone business is to do really well in emerging markets," he said during the call.
The world's largest telco, China Mobile has over 760 million subscribers in the Chinese market--a fact that isn't lost on Apple. "If you look at it from a common sense point of view, China Mobile has more subscribers than anyone in the world," Cook said.
The company's Greater China region, which includes mainland, Hong Kong, and Taiwan, clocked the biggest climb in revenue among all regions, increasing 29 percent year-on-year to hit US$8.84 billion in the quarter. In comparison, its revenue from North and Latin America dipped 1 percent from the year before to US$20.1 billion.
Japan also proved a bright spot for the company, which saw its revenue in the Asian market climb 11 percent year-on-year to US$4.95 billion in the quarter, following a deal which saw the country's largest telco NTT DoCoMo distributing iPhones.
Greater China region generated US$8.84 billion revenue for Apple this quarter, up 29 percent year-on-year, contributing over 15 percent of overall revenue.
International sales accounted for 63 percent of Apple's first-quarter revenue, over 15 percent of which came from Greater China, up from 13 percent the year before.
According to IDC estimates, over 450 million smartphones are expected to be shipped in China this year, hitting 540 million by 2017. In comparison, the combined smartphone shipment for the U.S., U.K., and Japan markets is expected to hit just 400 million.
That Apple is placing its bets on the Chinese market is a no-brainer, but it also doesn't guarantee a win. China is a notoriously tough market to penetrate, as some companies have discovered, and industry analysts have already noted that while its China Mobile deal may bring in the numbers, these would not be significant. Apple continues to face intense competition from Samsung and Chinese smartphone makers, specifically in the low-cost segment, and its premium price-points won't cut it in the price-sensitive consumer market.
Solar energy will put the "i" back to innovation
Well, if its China strategy fails, Apple might look to the sun for some answers.
According to Seeking Alpha analyst Matt Margolis, Cupertino is gearing up to integrate solar power capabilities in the next iteration of the iPhone. Pointing to the company's US$578 million deal with GT Advanced Technologies, inked almost three months ago to tap the latter's sapphire materials, Margolis predicted that the iPhone 6 and next-generation iPod Touch will be introduced this year sporting sapphire screens, enabling users to charge the devices via solar energy.
He further cited a Taiwanese media report that said iPhone manufacturer, Foxconn, was prepping 100 prototypes of the smartphone featuring sapphire-covered displays. In addition, Apple recently posted recruitment ads for a "thin films engineer" and " manufacturing design engineer" position that include details for "PVD coating" and "scribing", which Margolis said were related to solar experience.
The company in February was granted a U.S. patent for "integrated touch sensor and solar panel configurations", allowing Apple to introduce optical sensing capabilities to the screen as a means to interact with it and to boost its energy-generating capacity.
"The integrated touch sensor array and solar cell stack-ups may include electrodes that are used both for collecting solar energy and for sensing on a touch sensor array," Apple said in the patent. "By integrating both the touch sensors and the solar cell layers into the same stack-up, surface area on the portable device may be conserved. In addition to being used for capacitive sensing, the integrated touch sensor and solar panel configurations may also be used for optical sensing."
A solar-powered smartphone may well be what the iPhone needs to put the "i" back into innovation--something Apple has been deemed to be sorely lacking in recent years. And it should do so before the likes of Xiaomi and Samsung catch on.