Christmas is over, and that means one thing for Apple (NASDAQ: AAPL ) investors: weeks of contrasting takes on whether the company is set to beat its hefty expectations of $55 billion in sales this holiday quarter. You can expect the usual slate of "supply chain leaks" and research firms all looking for any clues into Apple's performance. Let's look at some of the news across the past week and then weigh in on whether investors should pay attention to these reports or dismiss them as mere noise.
A Flurry of smartphone sales?
Web traffic provides an easy way to get nearly instantaneous feedback on device sales. As smartphone and tablet users fire up their new devices and hit the Web, companies that monitor Web traffic are easily able to tell the operating systems from which traffic is coming from. This methodology isn't perfect by any means -- as an example, iOS users on average surf the Web far more than their Android counterparts do -- but it can lead to an early glance at holiday sales.
Researcher Flurry has more than 260,000 apps using its analytics package, which the company says allows it to track 90% of all new activated iOS and Android devices. It's a company with a pretty unique view into the smartphone and tablet market, so I always place an emphasis on its findings over unverified "supply chain leaks" that are common with Apple and other smartphone companies.
On Christmas day this year, Flurry found an impressive 155% gain in iOS and Android activations compared with last year. In total, the company counted 17.4 million activations, which was far ahead of last year's 6.8 million on Christmas day. As a confirmation of the accuracy of its device activations number, the company also measured a 112% increase in new iOS and Android app downloads on Christmas Day.
Will the iPad steal Christmas Day?
Yet as impressive as total Christmas activations were, the impressive part was the jump in tablets being activated on Christmas Day. The following image from Flurry shows the popularity of tablets as Christmas gifts.
For every four smartphones activated Dec. 1-20, only one tablet was activated. That number approximately jibes with estimates from other researchers. IDC has approximated about 122 million tablet sales this year, while smartphones should come in at about 700 million. That puts tablets at about 15% of all mobile sales this year.
Yet on Christmas, tablets actually overtook smartphone sales. A surge in tablets should be expected. Phones are everyday items activated throughout the year, while tablets lend themselves more to gift-giving. Yet 51% of Flurry's tracked 17.4 million activations implies that at least 8.9 million tablets were unwrapped on Christmas Day. That would constitute 7% of expected tablet sales in a single day.
Last quarter, the iPad pulled in about 50% of shipments, according to researcher IDC.
There are two important caveats to this data:
1. IDC's numbers are shipments. Shipments can differ from total end sales if tablets aren't moving off store shelves. Samsung's 18% market share looks especially suspicious to me.
2. This data was from the third quarter, a quarter in which Google's (NASDAQ: GOOGL ) Nexus 7 (seen via Asus, which manufactures the Nexus 7, on the preceding chart) and Amazon.com's (NASDAQ: AMZN ) Kindle Fire launched. Not only that, but tablet buyers also waited on the widely reported launch of the iPad Mini, which came in October.
Add those two facts up, and I believe Christmas Day activations would skew more heavily than 50% toward the iPad. Assuming 60% of activations were iPad and iPad Mini activations, that implies that a whopping 5.3 million iPads were activated on Christmas Day. Flurry also noted a particularly strong holiday for the Kindle Fire, indicating that Amazon is managing to beat its low-end Android competition.
Reasons for iPad fear?
Flurry's data runs in stark contrast to reports out of DIGITIMES, a company that frequently cites supply chain sources on ramping capacity, order cuts, and constraints that could point to better- or weaker-than-expected sales of popular devices.
The report of the week from DIGITIMES was that iPad Mini shipments might total only 8 million units because of insufficient yields on the device's display. The paper notes that shipments are likely to increase to 13 million in the first quarter of next year, but that wasn't enough to remove the sting of weak holiday sales. Eight million iPad Minis in the holiday quarter would be well below expectations, and on the day of the DIGITIMES report, Apple sold off 1.4%.
Tablet blowout, or tablet blowup?
Weighing the contrasting information between DIGITIMES and Flurry, I'm inclined to place more gravitas behind Flurry -- because it's using actual data versus unverified supply-chain leaks. Sources within a supply chain often have an incomplete picture of all the inputs going into areas such as total iPad production, and as a result, supply chain leaks are often woefully wrong.
In the end, investors in companies such as Apple need to hone their ability to tune out the vast amounts of noise. With a slew of dedicated sites, an army of Wall Street analysts, and a massive supply chain following the company on a daily basis, any day can feature several storylines and leaks. Some of it's meaningful, but quite a bit of it is inaccurate or simply unimportant to Apple's bottom line.
Oh, and for investors fretting about iPad Mini stock-outs holding back supply: Note that iPad Mini stock-outs in China and Hong Kong, now the company's second largest market, mean less in December. The important date to remember in the Chinese holiday market is Feb. 10, 2013, the start of the Chinese New Year. If Apple is seeing supply constraints ease with increased production across the first quarter, that could lead to a surprise when first-quarter results roll in, as it increases production just in time to meet demand for that event.
Cut out the noise, circle this date, and focus on the long term
What is always important is Apple's earnings release, a time we definitively learn how the company did in the past quarter. On Jan. 24, we'll get a final look at tablet sales for the quarter.
Beyond this quarter, the important area to watch with the iPad Mini isn't whether supply constraints hold the device back. Instead, investors should be watching how it defends Apple in a tablet space that continues to exceed expectations. At the beginning of the year, researcher IDC made news by predicting 198 million tablets sold in 2016. At the end of the year, it made more news by adjusting its expectation.
IDC now says 282 million tablets are now expected to be sold by 2016.
That increased expectation is partially the result of tablets that continue to hit lower price points, which brings about further adoption. The iPad Mini is Apple's entry to those lower price points, which will determine whether the company can hold on to its dominant market share, as tablet sales move from 122 million this year and toward numbers that could exceed 300 million in the next half-decade.
As an investor, my advice is to tune out storylines that are overly quarter-by-quarter in nature, and instead frame how major news affects where Apple will be as tablet expectations continue rising. In the end, that'll determine whether Apple's a winner over the next half-decade.
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