Apple's Domestic Domination May Not Be Enough

While Google (NASDAQ: GOOGL  ) Android may rule the global smartphone landscape, Apple (NASDAQ: AAPL  ) still dominates it domestically.

The new majority
According to the most recent data out of Kantar Worldpanel ComTech, iOS topped the 50% threshold in domestic smartphone sales for the first time ever, coming in at 53.3% for the 12 weeks ended Nov. 25. Android took a big hit, with its share falling 10.9% to 41.9% compared to the same period a year prior, while Microsoft (NASDAQ: MSFT  ) Windows Phone came in No. 3 with a 2.7% slice.

Platform

12 Weeks Ended Nov. 27, 2011

12 Weeks Ended Nov. 25, 2012

iOS

35.8%

53.3%

Android

52.8%

41.9%

RIM

7%

1.4%

Windows

2.1%

2.7%

Symbian

0.4%

0.2%

Other

1.8%

0.6%

U.S. Smartphone sales. Source: Kantar Worldpanel Comtech.

Research In Motion (NASDAQ: BBRY  ) saw its share absolutely decimated to just 1.4% as it anxiously awaits the launch of its next-generation platform, BlackBerry 10, later this month.

Analyst Mary-Ann Parlato said that the iPhone 5 saw strong sales but even older iPhone 4 and iPhone 4S models helped Apple grow its pie slice. The older models are still performing well among first-time smartphone buyers, potentially because they can be had for $0 and $100 subsidized on contract.

Kantar Worldpanel ComTech's figures show that 27% of iPhone buyers in November were coming from a rival platform, while 34% were upgrading from a previous iPhone and 40% were first-time smartphone buyers (percentages may not add due to rounding).

The big two
As far as carrier partners go, AT&T (NYSE: T  ) remains the top iPhone carrier, with iOS garnering a 71.8% share of sales during the period. iOS share on Verizon (NYSE: VZ  ) Wireless crossed the 50% threshold with 55% of sales. That's notable because Verizon has long been predominantly an Android carrier, along with its popular Droid marketing campaign. Combined, AT&T and Verizon comprise 67.3% of the domestic smartphone market, so how each platform fares on their networks is particularly meaningful.

Carrier and Platform

12 Weeks Ended Nov. 27, 2011

12 Weeks Ended Nov. 25, 2012

AT&T: iOS

62.3%

71.8%

AT&T: Android

25.9%

22.1%

Verizon: iOS

40.7%

55.0%

Verizon: Android

52.2%

43.1%

iOS and Android shares on AT&T and Verizon. Source: Kantar Worldpanel Comtech.

On both Big Red and Ma Bell, iOS was able to grow its share at the expense of Android. These figures are pretty close to the iPhone activations that both reported late last year, where the iPhone comprised 46% and 77% of total smartphone activations on Verizon and AT&T, respectively. The time periods and methodologies differ (both carriers' fiscal quarters ended in September), which explain the discrepancies.

When good may not be good enough
Domestic domination is fine and dandy, but is it enough for Apple? International sales were 60% of revenue last quarter, a level that's been fairly consistent over the past couple of years. That's overall sales, and Apple doesn't report the geographical mix of individual product families. However, thanks to court filings from Apple's legal battle with Samsung, investors got a glimpse of some of Apple's juicy domestic digits that can be used to derive international figures.

Source: Earnings press releases and court filings. Calendar quarters shown.

In the second quarter, 68% of iPhone units were sold internationally. The court filings only went through the second quarter, so no iPhone-specific data is available after that. This shows that conquering the domestic market may not be enough for the iPhone maker to continue driving incredible growth. That's why emerging markets like China, India, and Brazil are so important, as those geographies are where Apple will find its future.

However, the challenge is that two out of three of those countries don't utilize the subsidy model that Apple relies heavily on. Indian carriers aren't a fan of subsidies, which is why Apple has a mere 1.2% market share there. Even worse, subsidizing smartphones on contract was recently deemed illegal in Brazil. The practice is considered a "tie-in sale," which doesn't fly in the country. Unless the decision is overturned, Apple will have trouble competing on price.

Investors should be encouraged that Apple can rely on recurring revenue domestically from a consistent string of hardware upgrades, but it may not be enough, as it still has some hurdles to clear abroad.

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  • Report this Comment On January 09, 2013, at 12:35 PM, Darwood11 wrote:

    Great article.

    I am neither an Apple enthusiast nor am I an Apple basher. Investing for success is a pragmatic endeavor.

    Thanks!

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