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How did I get the iPhone number so wrong (part II)

Last quarter I was wrong because I thought Apple would throttle production of the iPhone 4 in the fourth quarter post-launch. “The reason growth would moderate was that Apple slowed production of the old model in order to switch out to the new model–we saw the same thing happen with the slowdown in iPad 1 and transition to iPad 2.”

As a result I seriously under-estimated iPhone volumes in the second quarter (FQ3). That failure led me to question whether the theory I was using in forecasting was still valid. When it came time for a new estimate I hesitated.

I had to choose whether to apply the old seasonality theory or to assume that the game had changed and that the product would now grow organically.

The first assumption would put the iPhone growth at 100%+ while the second would place it in the 60% to 80% range. I decided to dial in a figure somewhere in between at 90% but I’m not very confident in this

The result was an over-estimation by almost the same error as that of the previous quarter. Most of the other product lines were accurately predicted, but again, as a always, the whole forecast rides on the iPhone.

So where does that leave the theory?

I now believe that the iPhone behaves far more consistent with the original theory. Namely that…

  1. Overall production capacity is increasing at approximately 100%/yr.
  2. There is significant seasonality due to production ramps as the product is updated on a yearly cycle. These cycles are tuned to reach maximum throughput during the US holiday period. I discussed this theory here.
  3. Demand is practically unlimited and is throttled by both production schedule and distribution agreements

The first point is not controversial. The iPhone continues to grow at triple digits rates. The second quarter’s 142% growth and the first quarter’s 113% growth more than makes up for the 21% of the third. Fourth quarter promises to be exceptionally strong with management clearly guiding for a blockbuster.

The point of contention was number 2. If we look at the following chart, we can observe that it still holds:

Each new iPhone launch was preceded by a quarter where units went down sequentially. The same has happened with the iPad for the one tradition we’ve had so far.

Regarding the third point, Balance sheet analysis shows that investment in manufacturing process equipment installation slowed in the March quarter. That was not matched by a decline in the June quarter sell-out however it does correspond with a slowing in the September quarter. Using the PP&E line is something I’m still exploring but it does seem that there is support for the theory.

Mea Culpa

I made an error in abandoning my theory. I thought I had discovered an anomaly that made it invalid. I was wrong. I read too much into the late in cycle boom. I bought into the notion that the product was in a new pattern of behavior–due to expanded channel or broader portfolio. This was a mistake.

Footnote

  • There was one other bit of data that was offered to us which we ignored. At the 4S launch Tim Cook gave us a warning. He announced that 250 million iOS units had “just been shipped”. After the announcement it turns out that the total was around 254 million. This came up in comments on this blog. I noted that if the number is correct I should shave 13 million off my iPhone number. I even went into my model and adjusted it to see the effect. I did not “correct” my estimate as I felt that this new data could be disguised and not meant to signal to us. This was another error.
  • alberth

    If demand is essentially unlimited as you suggest, we should not see a similar drop in Android or other mfg’s shipments this last quarter unless there is market share shifting going on.

    • http://www.asymco.com Horace Dediu

      Google already reported that 60 million Android units were activated. We’re going to need more data but there does not seem to be an overall slowing of smartphone growth.

      • Gregg Thurman

        The problem with Google’s “activation” metric, is that we don’t know what kind of product was activated. Android isn’t just a smart phone/tablet OS. It is being used on feature and dumb handsets as well, not to mention non-telecommunications devices.

        If we think in terms of Android smart phone activations, then the number is much, much lower.

      • Anonymous

        I would have thought 90%+ of android activations were on smartphones, as tablets running android are selling miserably.

        Whats your definition of a smartphone running Android vs a featurephone running Android?

        My definition of a smartphone is a phone that can browse the internet natively and can install/run apps – are there any phones running Android that can’t do this? (In which case I would agree & say were feature phones instead).

      • Kizedek

        Maybe so, technically, but this has been discussed before…
        Google is making the OS a commodity. It is a no-brainer for huge handset manufacturers like Samsung and HTC and LG to slap Android in their latest portfolio product that they churn out every other week. Someone is going to buy them.

        Who are buying them? Mostly those that have had a “feature phone” and for whatever reason are looking for their next phone. The market for mobile phones, of whatever type, is HUGE. There is constant churn. But by most definitions, “feature phones” still comprise at least half of the phones “out there”. (Horace has a countdown on this).

        Now, almost every replacement of a “feature phone” is by a “smart phone” — certainly if we use loose definitions like yours. So what we have is that this “high market share ‘capture’ ” by Android is, as Horace often points out, simply the whole phone market maintaining status quo. These giant companies are now simply selling their placeholder phones with Android instead of the last flavour of the year, and their placeholder phones naturally evolve to include “surfing” and “run” apps (if you can even call it that. How is that in any way impressive?

        Chinese upstarts can even come in and displace large amounts of market share from incumbents like RIMM and MS and Nokia, because of the commoditization of design and of Android and play off the trends that Apple has set and leads in.

        (@TwangisKhan) But what of handsets? Apple starts selling phones, from scratch, in 2007. Two, now three of its handsets (its ONLY handsets, mind you) are the 1, 2, 3 top selling single handsets in the world! How is that a problem? And what of Apple “capturing” two thirds of the profit in the entire industry?

        And what of platform? If you include iPad and iPod Touch (usually ignored), iOS is right up there. iOS is more cohesive and iOS 5 has just been downloaded by 20 million people in the first week making their 2+ year old phones from two generations back very useful for at least another year. And the ecosystem has just had a major boost. How is all that a problem? It builds trust and loyalty among users that other companies can’t buy.

      • Anonymous

        For purposes of the discussion all Android phones are smartphones, even if the users aren’t actually doing anything smart on them. After all, a PC is a PC even if the user only ever runs solitaire. Discussions of how much functionality is being used make sense when it comes to discussing platform stickiness, but not when discussing platform sales.

        Tablets are irrelevant, Andy Rubin just confirmed that they are a total of 6million activations.

  • http://twitter.com/rcastano rcastano

    I guess we all got carried away with Apple crushing all estimates every quarter. It wasn’t just you with the high estimates. Just keep doing what you do best and learn from experience. We (and I think I speak for most of your readers) highly appreciate your analisys and opinion.

  • r.d

    white iphone did you in.
    Next year question is whether Apple his the 30 million mark.
    and stay there for subsequent quarters.
    Plus ipad seems to be 10 million a quarter product right now.
    probably only go to 18 million this quarter.

  • Mr_Donut

    It’s better not to misuse the word “theory” and call what you’re doing “hypothesis”. A hypothesis is a prediction whereas a theory is a principle that is already established to be true. Overtime, as you make hypothesis and test them by comparing them to reality, you can then establish a theory. For now, your dataset (and perhaps understanding) is too rudimentary for any theory.

    • Anonymous

      A fair point, but I tend to put it down to English being a second (third, fourth?) language for Horace.

      Horace is way smarter than I am, so I always give him the benefit of the doubt :)

    • Engineer

      No, you’ve got it wrong.

      A proven theory is called a law. A theory is a collection of hypothesis that seem to be holding, plus some reasoning to explain the observations.

      Horace is using the word theory absolutely correctly.

      • publiclee

        Theories are never proven – they just fail to be disproved (cf Karl Popper). If it happens long enough they may become principles. I believe (read somewhere) that the Four Laws of Thermodynamics are the closest any theories have yet come to this state.

      • Anonymous

        Close, but no cigar. Law’s and Theories are in fact completely different beasts.

        Laws describe behaviour, Theories posit explanations.

        Thus the laws of thermodynamics tell you what will happen, that energy will be conserved for example. Whereas Noether’s Theorem posits an explanation for conservation of energy, as being a result of translational invariance in the time axis.

    • http://www.asymco.com Horace Dediu

      I must disagree. A theory can be a proposed explanation defended by some reasonable argument. It is possible for example to have a theory that all dinosaurs were pointy at one end, thick and the middle and pointy at the other end.

      There is a more rigorous definition (perhaps that of a “scientific theory”) which requires a consensus of proof. But business analysis is not anywhere near science.

      Check out the work of Clayton Christensen on the process of theory building, especially in the context of business. http://www.innosight.com/documents/Theory%20Building.pdf

      • http://twitter.com/Marcos_El_Malo Marcos_El_Malo

        [AHEM!]

        The Dinosaur Theory of Anne Elk (Miss):

        You are truly a geek, Horace!

      • http://www.asymco.com Horace Dediu

        Yes, thank you for referencing the dinosaur theory, which I should have mentioned, and which isn’t mine.

  • Walt French

    Interesting that Apple blamed the rumor game in the call. It’s not as if the frenzy of rumors is unknown to Apple; nor did they amp up the well-placed “leaks” to guide various reporters.

    All the “disappointment” notwithstanding, Apple announced a product with a couple of significant new features that especially potential upgrade consumers SHOULD HAVE waited for, and that SHOULD HAVE sapped sales during Q3.

    Until the current 18-24 month contract lock-in disappears, Apple can expect a pent-up demand for upgrades on schedule each 24 months. If they’re worried about deferring sales a couple of months, they’ll have to be more reliable about developing products on a schedule. And with everybody betting on the Apple/Android horserace, the delay will look like a failure of will to compete.

    Regardless of Apple’s longer-term view of products and the services they want to offer.

    • Anonymous

      Im surprised apple hasnt replaced the 3GS with a new low end iphone model with similar low end specs that can be updated at an alternating pace with the premium iPhone. Maybe they are waiting until there is enough of a differentation between 2 models to be able to update them independantly (similar to the macbook Pro vs macbook Air models, both are updated regually but have differnet use cases).

      Im picking 2012 will be the year – iPhone 5 (the premium model) goes to A6 CPU & LTE, and a new iphone is bought in at the low end (non-LTE, 5MP camera, less storage, underclocked A5 processor to conserve battery power to fit a thinner battery into new slimmer form factor – the “iPhone Air”),

      2 new models a year will smooth out the product transition related sales drops, if they are introduced 6-9 months apart every year (a new phone every 9 months would be perfect, letting each model sell for 18 months before being replaced – you could even have the “n-1″ for each model continuing to sell for an additional 18 months for a total of a 3 year life span for every model).

      • Anonymous

        There’s a good reason for them not to demise the 3GS enclosure just yet, having it in the market gives them a stronger case in some of the lawsuits.

        As for the ‘iPhone-air’, it’s unlikely given the huge investment in tooling for the iPhone-4 that they would want to significantly alter the enclosure – the iPhone 4(S) form-factor will be very likely to be their mid-price phone in 2012. The 3GS may continue to drop in price to further penetrate the pre-pay market – I think that will depend on whether they can make it run iOS-6, which I think it probably will.

        There’s no evidence that Apple wants a more frequent product refresh, or that it’s worried about these periodic drops in revenue during a transition. Besides, from a revenue perspective it now has a split product line, with iPad refreshes in the Spring and iPhone refreshes in the Fall.

      • Anonymous

        Creating a new low-end device with a 160 ppi 320×480 screen is not acceptable. Leaving the model number and everything else the same they can just blame it on the supposed expense it would cost to make a new device. Change it and…well…they got some explaining to do!

    • Adamthompson3232

      Actually, as Apple adds more and more carriers at various points during the year there will be less and less of the 2-year upgrade around the time of the domestic iPhone launch (historically summer time). iPhone rollouts and sales are obviously very global at this point and with new carriers coming online at various times Apple will have iPhone customers at all different points of their contract maturity at any given time. iPhone is currently on 230 carriers worldwide. RIMM’s blackberry is on 600+ per their last call. As iPhone ramps beyond 300 carriers there will not be nearly as noticeable (or perhaps it won’t be noticeable at all) a demand spike around the domestic launch of a new iPhone. We’ll continue to see phased global rollouts that get new iPhones to new countries at various times that help smooth out some of the spikes. Don’t get me wrong, we will likely always have these spikes because new iPhones launch in the biggest markets first every year but as iPhone goes more global on more carriers we’ll see less of this issue I think.

  • Walt French

    PS: I can’t quite parse your tables, but they seem inconsistent with your statement that you “seriously under-estimated iPhone volumes.”

    • http://www.asymco.com Horace Dediu

      The writing was not clear. I modified it to point out that the under-estimation was for the second to last quarter (meaning CQ2/FQ3). I then over-estimated the last quarter (CQ3).

  • Anonymous

    Horace:

    From the perspective of an analyst, you have no reason to be disappointed.

    This kind of data point is exactly what is needed to refine your model.

    One point that many seem to be overlooking is that the iPhone 4′s most challenged quarter (before an upgrade), still managed to beat its most enhanced quarter (as a new launch). To me, this says that organic growth is still a big factor.

  • TwangisKhan

    Despite all of Android’s short comings, having these kind of hiccups don’t happen in an environment where there is redundancy in the supply chain. When are we all going to realize that having to wait for product again and again is a fail for Apple. Knowing another new phone is launching is another fail in all quarters preceding the launch. Meanwhile Android marches on.

    Apple lost huge share last quarter and someone should take a look seriously at how Apple is going to market.

    To paraphrase the late Steve Jobs “if customers are forced to wait for your product, you blew it”.

    • Anonymous

      It’s hardly a “fail” … It levels itself out over the course of the year. No other company has product launches like Apple for the exact same reason you mention. Android’s market just rolls along at an even pace, while Apple’s fluctuates throughout the year, as it ALWAYS has, with all of it’s products.

      • http://pulse.yahoo.com/_KEVQDCIMSOI6AFXXFFS5ZFFWBA PeterK

        By having one launch a year, Apple’s able to ship tremendous high quality innovative devices and systems. Of course, it’s always easier, quicker, and cheaper to copy or mimic those devices.

        However, it’s still very difficult to match Apple’s complete ecosystem.

        Apple provides a stronger, more complete solution each year and the others provide lots of interesting choices.

        Choose wisely.

      • Anonymous

        “it’s always easier, quicker, and cheaper” …to make it yourself.

        Actually, the edge they have is from making most of the device themselves. Samsung’s screens are all their own innovative OLED technology. They also run a semiconductor division, have their own fab, and heck they probably even make their own plastic.

    • http://pulse.yahoo.com/_KEVQDCIMSOI6AFXXFFS5ZFFWBA PeterK

      By having one launch a year, Apple’s able to ship tremendous high quality innovative devices and systems. Of course, it’s always easier, quicker, and cheaper to copy or mimic those devices.

      However, it’s still very difficult to match Apple’s complete ecosystem.

      Apple provides a stronger, more complete solution each year and the others provide lots of interesting choices.

      Choose wisely.

    • kevin

      It’s not a fail if your customers are willing to wait up to one quarter in order to buy a phone that is competitive and fully supported (with software upgrades and customer support) for another two to three years.

      This is not a sprint, but a marathon. Because huge numbers of people buy new phones on an 18-24 month cycle, it becomes imperative that a company is able to defend your base, i.e., prevent their current customers from departing for another brand. Look at how quickly Nokia and RIM are losing their customer base.

      In the long run, launching new phones every quarter is a fail, especially when it’s a guessing game as to whether they will ever receive a software upgrade, and whether the mfr cares to support it beyond the next 6 months.

      • Anonymous

        Yet likely almost half of the US is on the wrong cycle. Guess they’ll just have to buy from someone else, unless they want really old Apple hardware.

    • Canucker

      A definition of fail is when one supposed flagship Android device is launched (the Motorola Razr) and nine hours later it is usurped by another flagship Android device (the Nexus Galaxy). Very efficient for all concerned, I am sure, including the buyers remorse that can set in within a few weeks of buying an Android device. Before suggesting “someone should take a look seriously at how Apple is going to market”, ask who is making the money in this sector and then worry about the impact of non-redundancy. Methinks that the Android OEMs would, to a man, all prefer to have Apple’s “problem”.

      • vhs

        But TwangisKhan does have a point in that people waiting to upgrade for the next iPhone does hurt sales in the lead-up quarter.
        So what could Apple do about it? Maybe split their product lines and keep the rounded 3GS as a low-cost product line that is being evolved seperately from the current top iPhone. Same for the 4/4S once the iPhone 5 gets out. Apple could not just keep selling the old models, but update their hardware in addition to the regular software updates. It would end up with several independent product lines for typical users (e.g. teens, women, professionals) just like most other manufacturers.

        Now I’m not sure if that would necessarily be a GOOD idea, but it might.

      • Anonymous

        1. It’s great for the OEM: constant revenue stream
        1. It’s good for the potential buyer: more options
        2. It’s not bad for the device ownder: there is nothing wrong with their phone just because a new one is available.

        I fail to see how that supports your implication that Apple’s model is better…for anyone.

      • Canucker

        Apple benefits by being able to concentrate design resources into a single model which also brings economy of scale, a large peripheral ecosystem and high volume production.

        Consumers gain because their device gets free updates for three years or so, as well as consistent apps and media. Got a 14 month old Nexus One? No Ice Cream Sandwich for you. Seems the majority of Android phones will be in the same boat. How is that good for consumers. Besides, two thirds of mobile browsing is done on iOS devices so perhapss Android owners are mainly using their devices as phones so don’t care that their OS isn’t up to date.

        Android does provide lots of options and lots of dead ends too.

      • Anonymous

        How could you think I would let that comment about iOS web browsing on “phones” slide? You are lumping in tablets. The 35 million people who own iPads browse the web more than people who use phones. But you knew that already, I’m sure.

        And honestly, iPhone 3GS users probably would have been better off without iOS 5, considering it causes many people to have a battery life of about 6 hours in their pockets. See The Register or this 1,210 comment iPhone 4S thread on it: https://discussions.apple.com/thread/3391947?start=0&tstart=0

        Apple’s biggest new feature in iOS 5, Siri is not available even on iPhone 4, though it has been ported and runs on it, but is blocked on Apple’s servers. But as everyone should be aware, that is no surprise. The idea that Siri requires the A5 is pure marketing drivel. Besides which, the processing takes place on Apple’s servers, which also helps to protect their IP by not putting that code on everyone’s device. There is no better way to protect your code than to never give it out in the first place.

        Android 4.0 is a bigger upgrade than iOS has ever attempted. Doesn’t make it any more pleasant that they are not upgrading the 1 year and 2 months old Nexus One. Maybe they should just release a partial upgrade like iOS 5 to appease the masses.

    • Davel

      How is this a fail?

      Are you suggesting that all Android devices are the same? If so how? If so how do you segregate them?

      What happens if Apple and or Oracle/Microsoft win their patent cases? What happens to the Android system then? That is a fail.

      I have not seen Apple fail in mobile yet. As our host repeatedly points out Apple grabs the majority of the profits from this space while most of its competitors lose money.

      Apple’s biggest threat, Samsung, is losing in the courts to Apple and is prevented from shipping its products because it does not own the product it sells. That is failure.

      • TwangisKhan

        I don’t know much other than Android grew by 10 million units last quarter, while the iPhone was minus 3 million.

        The market is exploding and Apple doesn’t seem to want to compete like it did with the iPod.

        They lost share.

      • Anonymous

        First of all, if you “don’t know much” and you’re only comparing numbers without knowing the rest of the story, then yes, it would seem like the iPhone, not iOS, declined in the previous quarter. (Again, here we have someone trying to compare a platform with a hardware device.) However, anyone evaluating a platform, would not have such a myopic view of the market.

        Let’s get even more narrow-minded and look at sales of smartphones over the previous weekend, iPhone sold four million. So, if we only take those numbers and not consider anything else, then we can calculate that Apple will sell about 100 million iPhones this holiday quarter. Which translates into about 80% market share for the weekend, if we consider sales of roughly 120 million for the entire market over Q4.

        The point is, the lost share of the market doesn’t matter in the long run; as we will see come January, iPhone’s share of the market will rebound and surpass what it was before this quarter’s low number.

        “Apple doesn’t seem to want to compete”

        I suppose you’d have to take the blinders off to see that Apple now has three models on the market. Ranging in “price” from Free to $199. How exactly do they seem not to be interested in competing? (And please don’t try and compare the iPod with the iPhone. Not even close to being the same market or device types.)

      • TwangisKhan

        Apple simply lost share last quarter in an exploding market. No one can deny this.

        Will Apple sell 40 million phones this quarter to to keep pace with android and make up for their stumble? We will see. With the stock-outs we are seeing with the 4S it’s very doubtful they have the capacity to build this many phones even if they wanted to.

        We can revisit in January, but it also should be noted, 40 million phones will likely just be keeping pace.

      • Anonymous

        It’s actually not an “exploding market” it is in fact levelling off. For the last half of 2010 QoQ growth was 30%, then 25%… it was last under 10%.

      • Kizedek

        Keeping pace? Apple doesn’t need to “keep pace” with conversions from Nokia feature phones to bargain basement commodity “smart phones” that have had the commodity OS slapped on them.

        As a commodity is how Google basically describes its own OS and positions it — it is their view of software and services in general.

        Apple’s view of software on the other hand is that software is something to differentiate and add value to a quality hardware product; software must be of proven quality and gain customer satisfaction itself, and it can even add value to older models thus generating even more customer satisfaction and brand loyalty.

        Google is TRYING to be UBIQUITOUS for Pete’s sake — who wants to argue with THAT. More power to them. Google does not care about customer satisfaction, it cares about its core business-to-business products, just as MS.

        The vast numbers of phones out there in the world that get upgraded every day have to run SOMETHING. Android is merely holding the status quo from the displaced commodity OSs of yesteryear.

        Android is on a hodge-podge of phones that run the entire gamut from phhht to a couple of highly touted flagship phones advertised through highly promoted spec sheets in place of videos that show actual and honest real world usage. Do these flagship phones sell 4 million in a weekend?

        Google are starting to find out just how much of a Pyrrhic victory it actually is to chase being ubiquitous instead of merely indispensible.

      • Anonymous

        For being a bunch of numbers guys, you all sure don’t do much relevant research.

        Like for example: What is the average cost of an Android smartphone taken from actual sales? What does that bell curve look like? What’s the distribution? What can we learn from the data?

        *crickets chirping*

        For example, last quarter (ending Sept. 24), Apple sold 17 million iPhones. I think you’d likely see that, considering Android has 250% as much marketshare, they likely sold 15 million* smartphones at the same price or greater. Then, in addition to this group, they would have also sold 28 million* for less than the price of the iPhone.

        Now we both know that I just made the starred figures up to prove a point. But, amusingly enough, my assumptions are likely vastly more accurate than yours.

        So, you can try to play it like all Android phones are sold for cheaper than the iPhone, but even looking at the sales of individual $200 Android models, clearly 10s of millions are sold. They only need to sell more than 17 million per quarter to beat Apple at the high end. That is clearly not difficult.

        But you guys should really do the research on this before spouting off.

      • http://www.asymco.com Horace Dediu

        Keeping pace is right. If it keeps pace then I have no doubt that there will be 1 billion iOS devices in use by the time the smartphone market reaches saturation. That may make iOS a relative loser but it’s going to make Apple an absolute winner.

      • chandra2

        This is not related to the mainline topic but ” 1 billion iOS devices and the time of smartphone saturation” scares me a bit in terms of Apple growth possibility. I was using 2B smart phones sold every year as the saturation point with iPhone grabbing 500M every year at that saturation steady state. 1 B iOS devices will happen much sooner than 500M iPhone sales/year

      • chandra2

        Oops hit submit too soon. My question is ‘What do you think is the iPhone unit volume/year when saturation hits, with negligible growth there onwards’?

      • http://www.asymco.com Horace Dediu

        400 to 500 million per year.

      • Anonymous

        its true apple lost smartphone marketshare last quarter, that can’t be denied.

        However Its highly likely they will double sales sequentially in the next quarter (34 million + devices), so I’m sure Apple is not very worried.

      • http://twitter.com/beno1604 Michel

        So what. A shrinking market share usually brings with it the danger of a dying ecosystem, loss of developer support, profitability, etc. None of that applies to iPhone in particular or iOS in general.
        It is clear to me the iPhone/iPad market is supply side constrained, this is why Cook could predict the huge holiday quarter: they simply looked at production capacity for the next months and probably have sold it all already.

      • Anonymous

        You are equating the operations of a single OEM with the operations all the rest, it doesn’t work.

        Consider Apple vs Samsung instead. When Samsung’s last big phone launched, the SGS-2, it took them 3 months to reach the US, and that was in spite of the fact that it only had to sell 5million per quarter rather than 20million.

        In the 3 months that Samsung wasn’t present they will have lost potential sales, in fact the loss to Samsung will have been far greater than the equivalent loss to Apple from the 4-S, because Android OEMs are far more weakly differentiated – i.e. an HTC phone is a better substitute for a Samsung device than it is for an iPhone.

        Apple’s approach results in small drops every 12-18 months, as some consumer’s delay purchases – but it’s permitted them a huge advantage in scale, in PR, in reduced support costs, in reduced platform fragmentation, in user satisfaction (because phones remain ‘top-model’ longer), and dozens of other ways.

        From Apple’s perspective, it’s a price worth paying, which is why they adopted this tactic across all their business lines.

      • Anonymous

        Yes, let’s compare one OEM to another OEM. Shall we?

        Smartphone market:

        Samsung – 20 million units (Q ending Sept. 30)
        Apple – 17 million units (Q ending Sept. 24)

        http://online.wsj.com/article/SB10001424052970204485304576642421355724538.html

        The carriers taking so long to release the Galaxy S II in the states was a setback because of just how much better that phone has been than anything else in the 5 months (not 3) that it was delayed. But really, there are at least 10 variants of the GS II around the world. It’s not like they’ve been sitting around doing nothing. In fact, just look at the numbers above, before the release of the GS II in the US on most carriers, for evidence.

  • Luis Alejandro Masanti

    I do not know if this would help, but I think that the iPhone, in some way, is going the same “evolution” than the iPod way back.
    As a matter of facts, I think that there could be some similarities between the different stages or iPod (original iPod > iPod + mini > iPod + nano + shuffe) and of iPhone (origina, 3G, 3GS+3G, 4+3GS, 4S+4+3GS), and an analysis of that evolution in number of devices sold could throw some light in the iPhone arena.

    • Anonymous

      Slightly different, as when apple introduced the mini & nanos, they quickly became the leading unit sales devices – outselling the “premium” iPod. Buyers valued the reduced size & weight of the mini & nano compared to the extra storage of the higher priced iPod classic.

      At present the premium iPhone is also the highest selling model – for better or worse (depending if you are looking at it from a Gross Margin or Market share perspective), the cheaper models do not outsell it.

  • Anonymous

    Actually, your error was more like 57%, not 36% (the numbers have to be compared to the real ones, not vice-versa). Not picking, just that it did not compile. I was quite off this time too, even if last time I got a perfect prediction.

    • http://www.asymco.com Horace Dediu

      Thank you. I had the formula wrong. I corrected it.

      Yes, just when you think you’ve got the game figured out, Apple throws you off balance.

  • Billykunz

    Horace
    Talk about you being right! AAPL is selling exactally 5xcash.
    Billk

    • Anonymous

      Hey! Remember that my counter-prediction was that it would be at $400 in October based on relation to time, so I’m right too :)

      The crunch will come next year. My straight-line-in-time gives $500 for Oct 12, but at current cash generation pace, Horace needs them to be averaging at $500 much sooner.

      • http://www.asymco.com Horace Dediu

        I have to thank Nortel for my share price prediction model’s consistency.

  • Anonymous

    Next quarter the iPhone number will be 26,8 – so you were just a bit early :)

  • Dan

    Difficult to see any dropoff of Android users on a periodic basis while waiting for a new phone – there is a new phone almost every week or so. At that rate, no one would ever buy an Android phone, since they would be dreading the built-in planned obsolescence. Clearly, Apple fans are more prone to wait for the predictable replacements, while fully knowing they will be supported and updated for several years at least.

    • Anonymous

      The difference is that there is barely any difference between this weeks and last weeks android phones, they are tiny incremental upgrades compared to each other. The iPhones however are a huge spec bump compared to the year ago model (definitely worth waiting a month of two for).

  • Anonymous

    I always expected a dip on the iPhone figures, and so did Apple since they mentioned last quarter that revenues would be down this quarter for ‘product transition’, but what I didn’t expect was the iPad to come into equilibrium at 11mill, especially not with 1mill of that going into inventory buildup.

    • Adamthompson3232

      Actually, Apple guided up in the September Q. Apple guided to $23B for the June quarter and guided to $25B for the September Q. The September Q then posted the smallest beat in Apple’s recent history (2 years or more). Apple clearly came up short of their own expectations in the September Q.

      • Anonymous

        They guided down in the September quarter from the actual June quarter. The June quarter had revenues of over $28BN, and they guided as you said to $25BN – ie. they predicted a significant sequential drop

        As the Q&A showed

        Katy Huberty – Morgan Stanley: The 12% revenue downtick, Peter, in September is much more conservative than your typical September guidance … Can you help us understand why you expect this next quarter to trend softer than seasonal

        Peter Oppenheimer: … For iPod, we would expect to see a sequential year-over-year decline. As we announced at WWDC, we have a lot going on in the fall with the introduction of iOS 5 and iCloud. We also have a future product transition that we’re not going to talk about today and these things will impact our September quarter.

        In fact Apple significantly beat their guidance, particularly from a profit perspective. They actually beat their revenue guidance by more than in Q2 (guided 22BN, actual 24BN). Do you think they did worse than they expected in Q2 also?

  • Canucker

    I am waiting for Horace’s chart showing the growth of Android smartphone screen size over the past 12 quarters among the manufacturers and compared to the per device profit. Then we’d be able to predict when an Android phone will match the screen size of an iPad. No need to plot Apple; it’s a single point of data.

    • http://www.asymco.com Horace Dediu

      I received a question from a journalist who asked me what I thought of the fact that Android flagship phones were priced higher than iPhones. What does that mean about how Apple is pricing?

      I had not thought about it, but I realized then that Apple prices for a particular spot whereas competitors look for spots above or below that to make a stand. By increasing screen sizes they are able to position above Apple and try to get “premium” buyers. This could be seen as Android enabling up-market flight.

      It’s a bit surprising considering that Android should be a low-end enabler. But again, Android is just a lubricant for OEM vendors to more quickly meet their fate.

      • Anonymous

        There are some other factors at play too. Android phones tend to launch at a very high initial price, because within a few months they will be ‘old models’ and hence discounted. iPhones of course get a full year or so of being the new model and commanding the full price.

      • Anonymous

        Yeah, because Samsung is doing so horrible. I think they’re gonna die soon!

        Scratch that. For a second I couldn’t remember that story I heard all over the news about Samsung overtaking Apple in smartphone sales a couple weeks ago. My bad.

  • Li An

    I take a little bit of credit for being the first to point out the 250M IOS number throw out by Cook at the iPhone 4S event point to lower sales in the 3rd quarter. The lesson is, Apple has always said what it meant, and meant what it says. Always take what Apple says at face value

    • http://www.asymco.com Horace Dediu

      Yes, you deserve the credit. Thanks for moving the ball forward.

      • Li An

        Thanks for the kind words. You are the best.

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  • http://twitter.com/strobist David Hobby

    What a fantastic blog. Thanks for your hard work. (Found thru TC’s links today and subscribed.)

    FWIW, I sold other stocks pretty heavily today to load up on AAPL during the selloff. MG was right — the iPhone cycle was pushed back. That they sold 17MM iPhones in a Q before everyone was expecting the iPhone 5 is actually pretty amazing. I will *happily* hold this until next Q’s earnings announcement.

    $30B in cash makes this a 14 PE company with outstanding growth, brand value and zero debt.

    • Adamthompson3232

      Apple has over $80B in cash today and forward P/E with the cash is likely in the single digits. Ex-cash it’s even more attractive (obviously).

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  • Li An

    Horace, I wonder if you can analyze the degree of the slow-down in last quarter’s iPhone sales to previous iPhone releases, such as Q2 2010 (before iPhone 4), Q2 2009 (before iPhone 3GS), etc. If the degree of slow down is comparable, then we can believe the slow-down is mostly caused by delayed purchases by consumers in anticipation of a new iPhone. My concern is that there is a more general slowdown of iPhone demand, perhaps in China or in Europe.

    • http://www.asymco.com Horace Dediu

      There is an overall slowing in the phone market especially in Europe, but the market is vast and smartphones are still growing. The conversion to smart is going to have some modulation but that’s to be expected. I posted this slide from Mary Meeker on Twitter to put things in perspective: https://twitter.com/asymco/status/126659635842260993

      image link: http://t.co/zH1hszPW

      (by the way, I believe mobile internet (smartphones) will have higher penetration than fixed internet)

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  • Anthony Daniele

    I think the decline in the quarter prior to the release suggests some buyers are delaying purchases in expectation of a new iPhone. People used to expect a mid-year release, but this year Apple made it clear it would be later, hence sales of iPhone 4 continued unabated. I can think a number of times where I convinced friends that the new phone would be late this year, which often lead to them upgrading to the iPhone 4 immediately.

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  • Peter Hanes

    Horace,

    I always seem too late to be part of the discussion on your posts.

    On “The Critical Path” podcast this week you mentioned that you had low confidence in your iPhone forecast for the past quarter. In your original forecast at:
    http://www.asymco.com/2011/08/23/estimates-for-apples-fourth-fiscal-quarter-entering-the-post-pe-era/
    you ran through your thinking and you considered the possibility of exactly what happened to the iPhone numbers.

    There’s a way to express confidence in your forecasts – provide confidence limits as well as your best guess to each individual result. I wrote about this in the last comment on your forecast.

    If you just give a single number, the actual result will show you how good your guessing is. If you give a confidence limit as well, the actual result will show you how good your thinking is.

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