Over the last several years, concerns regarding Apple Inc.’s (AAPL, Financial) ability to continue growing its top revenue generator, the iPhone, have steadily increased. The company’s smartphone shipments growth continued to slow over the last several years and recently started to decline.
In a preliminary report published on Jan. 30 by International Data Corp., a company that tracks smartphone shipments worldwide, Apple’s iPhone shipments in fourth-quarter 2018 dropped by more than 11% year over year, losing its market share to rivals Samsung Electronics Ltd. (XKRX:005930, Financial) and Huawei.
According to the report, Apple shipped 68.4 million iPhones in the fourth quarter compared to 77.3 million units in the prior-year period, thereby resulting in an 11.5% decline. This pushed its market share for the period lower to 18.2%. It was 19.6% in 2017.
On the other hand, Samsung’s smartphone shipments were down 5.5% to 70.4 million from 2017’s 74.5 million, but this still earned the technology giant the top spot with 18.7%. Huawei, which is now the world’s third-largest smartphone manufacturer, shipped 60.5 million units, accounting for 16.1% market share. OPPO Electronics Corp. and Xiaomi rounded off the top five smartphone makers in the world, which now account for 69% of the global market share, up from 63% in 2017.
On a full-year basis, Samsung is ahead in terms of market share with more than 20%, but the race for second is close with Apple at 14.9% and Huawei at 14.7%.
While Xiaomi and Huawei witnessed significant growth in shipments during the quarter, overall smartphone shipments were down 4.9% for the holiday season quarter. This was also the fifth quarter in a row that global smartphone shipments declined year over year.
What does a continuous decline in global smartphone shipments mean for the market?
There is a developing trend here, which could make things interesting going forward. It is not just Apple experiencing a decline in shipments. It is the global market, which is being squeezed even as more people continue to buy smartphone devices due to an improvement in living standards.
This means more people are holding on to their older smartphone devices instead of switching to new one.
This is primarily because smartphone manufacturers have not been able to significantly improve on current devices, which would have effectively limited the use of their older versions. One reason behind this is that, to make a major improvement in hardware, it is likely to cost companies more. With competition heating up, especially from the likes of Huawei, Xiaomi and OPPO, the main smartphone makers have been forced to evolve.
Apple, for instance, has adopted a new business model that will focus on expanding the company’s service offering while also opting to discontinue reporting unit sales from iPhone, iPad and Mac.
Last year, the company reported that while iPhone shipments growth was slowing, it was actually receiving more customers who switched from Android and other devices.
Analysts have also attributed the slowdown to the fact fewer iPhone owners are switching to newer devices, which means the overall number of users continues to grow despite the slowdown in unit sales. This means Apple’s services business, which is increasingly becoming a focal point of its future growth, continues to expand.
Shares of Apple have dropped more than 33% since October. Based on the current trend, it might be a while before a major rebound occurs. The news about the massive decline in iPhone shipments during the December quarter could also affect the stock, which means things could get worse before they get better.
However, Apple continues to enjoy a robust business moat in the smartphone market, especially in North America, and has continued to expand its service business. There could be a few bumps ahead, but the company's plan is clear. The future looks interesting, but whether investors can buy into this plan is another thing.
Disclosure: I have no positions in the stocks mentioned in the article.
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