Watch stocks you care about
The single, easiest way to keep track of all the stocks that matter...
Your own personalized stock watchlist!
It's a 100% FREE Motley Fool service...
With the way Apple (Nasdaq: AAPL ) not only straddles the burgeoning tablet and smartphone markets but also holds sway across the computer, home-entertainment, and media fields, the moves it makes can have an impact on the future of hundreds of companies. With that in mind, we're taking a look at the week in Apple news to see how the latest activity affects the Cupertino giant, its suppliers, and even its competitors.
Shrinking Apple market share? Not so fast ...
One of the key areas pointed out by investors who feel Apple's valuation has become overheated is the company's slowing market share growth rates. Apple sells a product that commands a premium price relative to its competitors, so as smartphone growth increasingly shifts to emerging markets with less spending power, cheaper smartphones powered by Google's (Nasdaq: GOOG ) free Android platform logically should continue taking share. That theory has gained some momentum as Apple's global market share has stagnated in recent market share surveys.
For example, here's a snapshot of Gartner's most recent global market share results.
3Q10 Market Share (%)
3Q09 Market Share (%)
|Symbian (Nokia's OS)||36.6||44.6|
|Research In Motion||14.8||20.7|
|Microsoft Windows Mobile||2.8||7.9|
The takeaway from the chart is fairly obvious: Android is stealing gobs of market share from every other smartphone vendor. While Apple has fared relatively better than rivals Research In Motion (Nasdaq: RIMM ) , Nokia (NYSE: NOK ) , and Microsoft (Nasdaq: MSFT ) , its total market share is still falling behind.
However, it's always important to note that market share numbers aren't what they seem. The numbers measured by Gartner and competing research firms are based off total units sold. While Nokia might be dominant in units sold, the company has also aggressively pushed cheaper phone options and has struggled to create a capable high-end competitor to the iPhone.
Take this chart below, which compares average selling prices (ASPs) among three of the largest smartphone players.
Q3 2010 ASP
Q3 2009 ASP
|Research In Motion||$315||$337|
Source: Company filings. Includes only reported results for smartphone or "converged devices" segments. Due to fiscal quarter timing differences, uses Apple's fiscal fourth quarter ASP.
Not only is Apple's average selling price two to three times as large as its key rivals', the amazing part is that the lead is expanding. Thanks in part to this growing ASP advantage, when comparing Apple to its rivals, it managed to grow its market share when measured in terms of revenue, a far more important metric than the usual units measurement seen in market share studies.
Here's how smartphone market share stacked up in third quarter 2009 based on revenue.
Source: Company filings, Gartner, author estimates.
Now here's the updated market share for third quarter 2010.
Source: Company filings, Gartner, author estimates.
It might not be completely obvious from the chart, but Apple's "slice of the pie" actually grew between last year and the current year, from about 28% of smartphone revenue to 31%.
Does this mean Apple's momentum should continue roaring unchecked into the coming years? Probably not, it's true that as smartphone growth pushes into emerging markets Apple will either have to fall behind in terms of broader market share or it will have to cut back on its selling prices to introduce a cheaper model into those markets. However, there are a couple of takeaways for investors:
- Apple has managed to maintain its premium pricing level amazingly well for such a competitive market.
- Android's lead in terms of unit market share should continue growing. However, that growing market share will be accompanied by quickly declining prices hastened by both fierce competition and handsets moving into poorer markets. If prices are dropping at a clip relatively close to unit gains, the reported growth in total Android sales will be far less than headlines would indicate.
In the end, the smartphone market increasingly looks headed to a duopoly situation between Android and iOS. If Apple can simply nudge its market share a few points higher at the stake of competitors like Nokia while keeping a higher pricing point as the premium alternative to cheaper Android phones, broader growth in the smartphone industry should drag phones sales to a level that more than justifies Apple's current share price.
The slowing Android march?
Speaking of Android phones, reports continue to flow in that the Android's momentum has slowed in the wake of the iPhone 4's release. Research which was first published by Asymco, showed slowing growth on Verizon's (NYSE: VZ ) Android-heavy smartphone activation count. In fact, AT&T (NYSE: T ) -only shipments of iPhones were predicted to have outsold Verizon's Android sales by a "factor of 2.5."
Given this information, it's not surprising to see reports of Verizon not only redoubling its efforts to get the iPhone, but also willing to make price concessions to keep the phone off both T-Mobile's and Sprint's networks.
While this news has obvious implications toward the market share battles already discussed between Apple and Android, the more important point is pricing. Apple's move to Verizon was largely seen as a blow to its pricing power, as AT&T is widely acknowledged to have cut Apple a sweetheart deal for exclusivity. However, if Verizon is desperate enough to make wide concessions of its own, the iPhone's pricing level in the U.S. should hold up better than expected, with the added bonus of more phone buyers to sell to.
That's it for the week's Apple news. As we close out 2010 and investors look ahead to next year's winning investment ideas, The Motley Fool has created a brand-new free report called The Motley Fool's Top Stock for 2011. In it, we reveal the little company set to profit from the broadband Internet expansion. Get instant access by clicking here -- it's free!