Apple for the day

Brian Chen has an article in The New York Times about sales of the iPhone:

For Apple, the iPhone continues to be the device that makes the company tick.
While top rivals like Samsung are starting to show weakness in phone sales, Apple sold 35.2 million iPhones in the third fiscal quarter, up thirteen percent from the period a year ago. The total was slightly below the estimates of analysts, who had expected thirty-six million iPhones to be sold.
But, for Apple, slightly disappointing analysts on iPhone sales does not appear to be cause for alarm. The company, based in Cupertino, California, reported profits of $7.75 billion in the quarter that ended on 28 June 2014, up from $6.9 billion in the quarter a year earlier.
Revenue was $37.43 billion, up from $35.32 billion in the quarter a year ago. Wall Street analysts had expected revenue of $37.93 billion, according to a survey of analysts by Thomson Reuters.
The strong iPhone sales, thanks in part to a recent distribution deal with China Mobile, offset other, more disappointing results from Apple’s other signature product, the iPad. The company sold 13.3 million iPads, down nine percent from the year-ago quarter. Analysts had predicted it would sell an average of 14.4 million.
But a small dip in iPad sales is not so bad if iPhone sales are up. Apple’s gross profit margin was 39.4 percent, up 2.5 percentage points from the quarter a year ago. Apple makes more money on each iPhone than it does on each iPad so, when sales momentum shifts away from the iPad toward the iPhone, profit margins are better.
Unlike Samsung, which is having a difficult time fending off low-cost competition from companies like Xiaomi and Huawei, sales in China gave Apple a big boost over the quarter. Apple’s revenue in China grew 28 percent from a year ago.
China is an increasingly vital market for the company, especially now that the smartphone markets in the United States and parts of Europe have become saturated.
In fact, the importance of China would be an impetus for Apple to develop a lower-cost, big-screen iPhone to target the Asian region, said Ben Bajarin, a consumer technology analyst for Creative Strategies.
IDC, the research firm, estimates that at least twenty percent of all smartphones shipped last year in China were five inches or larger. It predicts that number will balloon to fifty percent by 2017. “Positioning a lower-cost iPhone in a larger screen size would fit Asia’s trend perfectly,” Bajarin said.
That is what Apple intends to do in the fall, according to a person briefed on Apple’s product plans, who spoke on the condition of anonymity because the plans were private. Analysts expect Apple to release two sizes; one model with a screen that measures 4.7 inches diagonally and the other at 5.5 inches.
Still, the excitement over the iPhone was tempered somewhat by iPad results.“iPad sales met our expectations, but we realize they didn’t meet many of yours,” Timothy D. Cook, Apple’s chief executive, told analysts on the company’s financial earnings call. Shares of Apple were down about half a percentage point in after-hour trading.
In an interview, Luca Maestri, Apple’s chief financial officer, said iPad sales brought in mixed results in different regions. In China and India, tablet sales grew substantially. In more mature markets, like the United States, however, iPad sales were softer.
Apple cited data from IDC, the research firm, indicating that tablet sales in the United States and Western Europe would decline five percent last quarter.
Traditionally, the quarter ending in June is a slow time of year for smartphone sales industrywide because many consumers are holding out until fall or the holiday shopping season to buy new smartphones.
Samsung Electronics, the number one handset maker in the world and Apple’s top rival in the mobile handset industry, is no exception to this trend. This month, Samsung said it estimated its quarterly profit would fall 24 percent compared with the period a year ago. In part, the company blamed the time period— a slow season for smartphone sales in China, the largest smartphone market in the world— for the shortfall. The company also blamed intense competition from its low-cost rivals.
Tablet sales shrank for Samsung, too, last quarter. The company said that generally, consumers upgrade tablets less often than they do smartphones. That might be the same reason iPad sales slowed this quarter as well.
“It’s part of a pattern; lots of new people are buying iPads, but people who already have them haven’t been replacing them very quickly,” said Jan Dawson, an independent telecom analyst for Jackdaw Research.
Maestri of Apple added that he believed Apple’s new partnership with IBM would only help lift iPad sales among businesses using tablets. Earlier this month, the companies said they would work together on a hundred business programs exclusively for iPhones and iPads.
Maestri said he felt it was too early to draw conclusions about how often people replace iPads, because the first iPad came out only four years ago. “We still don’t know exactly what the replacement cycles are,” he said.

Rico says his replacement cycle is driven by a lack of cash, not a lack of interest. (Though he hasn't seen much change in the iPads...)