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Apple CEO: high-end smartphones haven’t peaked

iPhone 5

By Shona Ghosh

Posted on 24 Jul 2013 at 09:09

Strong iPhone sales boosted Apple’s profit beyond analyst expectations for its fiscal third quarter, as CEO Tim Cook promised the firm wasn’t done with high-end smartphones just yet.

The company sold 31 million iPhones during the quarter, ahead of expectations, but didn’t do as well with iPads, with sales falling from 17 million to 15 million year on year.

Cook dropped hints during a call with investors about breaking into emerging markets with lower-priced phones, but said the company still had more to achieve at the high end.

"I don't subscribe to the common view that the higher end, if you will, of the smartphone market is at its peak," he said. "I don’t believe that but we will see and we will report our result as we go along."

Although the iPhone is often cast by analysts as too pricey for emerging markets, Cook noted that the iPhone 4 was proving popular with first-time smartphone buyers, though he didn't give figures.

"The number of first-time smartphone buyers that the iPhone 4 is attracting is very, very impressive," he said. "And we want to attract as many of these buyers as we can."

He added the company had more tricks up its sleeve to appeal to the middle- and low-end of the smartphone market.

"There are always more weapons, and we have more than one tool in the toolbox," he said. "It’s a great way for a buyer to get into the iOS ecosystem and the customer set ratings that we have with iOS 6 and the stickiness of the platform is huge."

Apple has been rumoured to be working on a cheaper iPhone for some months, and Cook has previously hinted that the company was looking to make its phones "more affordable".

Lower margins, lower selling prices

Though Apple did better than expected, its quarterly profit fell to $7 billion from $8.8 billion last year. It posted revenues of $35.3 billion, up from $35 billion this time last year.

And growing competition in all corners of the smartphone market, plus the growing number of cheaper products in Apple’s lineup, like the iPad mini, pushed the firm’s profit margins down to below 37%, from more than 42% the previous year.

Cook was also unable to explain a significant slowdown in revenue from China, which accounts for a significant fraction of the firm’s overall sales.

Growing competition in the maturing global smartphone market, coupled with the rising number of lower-priced devices in Apple's line-up, such as iPad minis and older-model phones, pushed third-quarter profit margins to below 37% from more than 42% just a year earlier.

Analysts and executives struggled to explain the slowdown in greater China, which includes Hong Kong and Taiwan and accounts for 13% of Apple's fiscal third-quarter revenue.

Apple’s stock rally this week may quickly lose steam, as Apple is plagued by falling prices and an uncertain product pipeline, said BGC analyst Colin Gillis.

Gillis told Reuters that average selling prices (ASP) "are declining and margins are going to be under pressure. These things look like the realities".

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User comments

Whistling in the wind...

Just in case Mr Cook hasn't noticed, when technologies mature, so do markets. As a Leftie I shouldn't really need to point this out to such an 'entrepreneur', but hey ho...

The current state of the PC market is a case in point. Most people in the developed world have all the PC they need, and there's no compelling need to buy another.
That's not to say that there aren't significant opportunities for niche players: Apple has inhabited one for years with its portables.

In today's commercial environment Smartphone saturation\maturity is approaching, much quicker than with PCs. The slow-down in iPad sales indicates that it's happened even faster in Tablets.

Apple had first-to-market advantage in 'phones and it dominates just as MS did in PCs, but that dominance is waning faster than a Clarkson metaphor at the Hay Festival.

Apple benefitted by being able to exploit high margins, whilst gaining mass sales. That benefit is fast disappearing: the relative decline of the iPad must be a pointer.

Nokia, once more dominant than Apple, and MS ditto are both having to adopt drastic re-inventions to cope with the 'new world order'. Whatever Mr Cook may think Apple is not immune. Apple needs to figure-out its play for the future, but 'Business as Usual' definitely won't work.

By wittgenfrog on 24 Jul 2013

Doing what they always did

I agree with most of what you say wittgenfrog.

But isn't Nokia just doing what they always did? Providing a range of phones across all budgets.

Personally I think it's clever strategy and even the bottom of the range Lumia's are excellent, super smooth smartphones.

By Grunthos on 24 Jul 2013

@Grunthos

Yes indeed that's exactly what I was driving at.

Nokia has always been a mass-market producer.
It looks like using WP8 has enabled them to continue in that tradition. Customers don't know or care if it's "Windows" or Android. It's "Nokia"

By wittgenfrog on 24 Jul 2013

@Grunthos

Nokia stuck with making fairly basic phones and just bolted additional features onto an already clunky OS. Hence their fall from grace and the need to re-invent themselves with a modern and up-to-date OS.

Similarly, Microsoft's mobile and tablet offerings for years have been woefully sub-par and this has been shown up as iOS and Android have left them in the dust.

Hence why both have had to re-invent themselves to stay relevant - something which hasn't entirely been a success so far - especially for Microsoft!

By Trippynet on 24 Jul 2013

@TrippyNet

MS & Nokia were illustrative.
I think the point is that MS and Nokia's problems derive from rapid market change (from "disruptive" technologies, as Jobs used to say). The success of their responses to these disruptions is not clear yet.

Apple, (or at least Tim Cook) buoyed by a role in the aforementioned "disruptions" appears to be steaming ahead on the same course without taking account of probable icebergs ahead.

By wittgenfrog on 24 Jul 2013

Duck

I suspect not, the rhetoric may sound usual but there's an emphasis on them gliding like a duck but "paddling like mad" below the water level.

The Nokia's are being sold a staggering low margin and are perhaps the best bargains in the current 'battlefield' and are astoundingly good value and quality.

By Gindylow on 25 Jul 2013

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