Apple will no longer report iPhone numbers after sales went to 0%, and analysts are worried the era of iPhone growth is over
- Apple will no longer report iPhone sales numbers.
- The move can only be interpreted negatively.
- "Some people may fear that this now means that the iPhone units are going to start going negative year over year because it's easier to talk about great things and not show the details of things that aren't so great," said CITI analyst Jim Suva.
- Global data show smartphone sales are going into decline, and CEO Tim Cook has previously admitted he is comfortable with that.
Apple announced last night it would no longer be reporting iPhone sales numbers - or sales numbers for any of its products - on future earnings calls. Investors hated it: AAPL stock tanked 7% on the news and was still down 5% in premarket trading before the New York exchanges opened.
The disclosure can only be interpreted negatively. CITI analyst Jim Suva summed it up on the call last night perfectly. He told CEO Tim Cook and CFO Luca Maestri:
"Some people may fear that this now means that the iPhone units are going to start going negative year over year because it's easier to talk about great things and not show the details of things that aren't so great."
This morning, Walt Piecyk, the respected tech analyst at BTIG Research, agreed. He told the Financial Times, "It's certainly not a good look for Apple in the eyes of consumers when analysts are quoting ASPs [average sales prices] that are rising by double digits ... By not reporting units, it effectively removes the discussion of rising prices from mainstream media stories."
If Apple wants to hide the fact that it is worried the iPhone is going into decline, then not reporting its sales numbers helps it avoid that negative PR.
There is almost no other way to interpret the move
On the call, Cook and Maestri tried to explain that they believed unit sales were now less important than total dollar revenue. There is some logic to this. In recent years, especially since iPhone X, Apple has increased its total revenue largely by raising the price of the iPhone, not by selling more phones. Actual sales have barely moved. This set of numbers from last night's earnings tells the tale: Dollars going up, actual products are flat or in decline:
Cook and Maestri tried to convince analysts that Apple's other lines of business are increasingly important. Sales of "Services" - the App Store and other paid software downloads - increased by 17%, for instance. And, Cook said, the "installed base" of existing iPhones is now so big that it is more important for sales than the much smaller number of new units they sell every 90 days. The installed base is the thing that is driving Services sales. People own an iPhone for years, and they continuously pay to download music and apps. That is Apple's growth business now.
"Our installed base is growing at double digits," Cook said. "And that's probably a much more significant metric for us from an ecosystem point of view and the customer loyalty, etc."
Notably, Cook did not promise to replace the unit sales stat with a new stat on the size of the total installed base.
So, that's Apple's case.
Cook has all but admitted the iPhone is now in decline
But here is the grim reality Cook did not talk about: The iPhone is likely going into decline. We know this because Cook came close to saying it on his previous earnings call, when he said of the smartphone market, "It's an enormous sized market and whether it grows, from our point of view, whether it grows 1% or 2% or 5% or 6% or 10% or shrinks 1% or 2%, it's a great market because it's just huge. And so that's kind of the way that I view that."
More objectively, smartphone sales data has been signalling the decline of the iPhone for years. The global context is that the iPhone rarely gets better sales than the smartphone market as a whole, and the smartphone market as whole is going into decline - implying that iPhone will too.
Some analysts have already hinted they no longer trust Apple
Analysts will hate this. Like it or not, iPhone comprises 59% of all Apple revenues. Apple is the iPhone company, by definition. So when the company moves to conceal how the iPhone is doing, that's bad.
Some analysts have signalled in the past that they no longer trust Apple's numbers. In 2016, Ben Thompson of Stratechery, and Pacific Crest analysts Andy Hargreaves and Evan Wingren all said they thought Apple's description of some iPhone sales metrics were misleading.
And in 2014, Barclays' Ben Reitzes had the temerity to ask Cook, "Are you still a growth company?" - implying that Apple had lost the ability to increase the market for iPhone.
Now we may have an answer to that question. The iPhone has reached a peak, and Apple wants to leave it at that.
