It can't be all good news. While Apple (NASDAQ:AAPL) investors were still celebrating strong third-quarter earnings, which pushed the company above the $1 trillion valuation, Cupertino received sobering news courtesy of IDC. According to the data-analysis firm, Apple con no longer claim the title of world's second-largest smartphone manufacturer by shipments.

While the company always trailed Samsung in total shipments, now China's Huawei has surpassed Apple, and by a rather large margin. Upon further inspection, however, this is not bad news but rather a validation of Apple's iPhone strategy.

Elated stock trader.

Image Source: Getty Images

Apple: bronze medal for shipments, gold medal for profits

In the second quarter, Huawei increased shipments approximately 41%, while Apple reported negligible growth of 0.7%. As a result, Huawei's market share rose from 11% in 2017 to 15.8% this quarter. Despite minuscule shipment growth, Apple's market share grew slightly as overall smartphone shipments decreased.

  Q2 2018 Shipments Q2 2018 Market Share Q2 2017 Shipments Q2 2017 Market Share Shipment Growth (YOY)
Samsung 71.5 20.9% 79.8 22.9% (10.4%)
Huawei 54.2 15.8% 38.5 11.1% 40.8%
Apple 41.3 12.1% 41 11.8% 0.7%
Xiaomi 31.9 9.3% 21.4 6.1% 49.1%
Oppo 29.4 8.6% 28 8% 5%
Others 113.7 33.2% 139.5 40.1% (18.5%)
Total 342 100% 348.2 100%  

Shipment totals in millions. Original Source: IDC 

Most of the shipment gains -- specifically from Huawei and Xiaomi -- came from the low/middle end of the market, segments of the market where Apple doesn't compete.  

However, with negligible unit growth, Apple grew iPhone revenue 20% because of higher average selling prices as the mix shifted to the flagship iPhone X. When the company debuted the newest iteration it was clear the high-end smartphone maker was going even higher end, as the company raised the entry-level price. 

Samsung was the biggest loser

While the news centered on Apple's position slip, Samsung (NASDAQOTH:SSNLF) fared the worst of all major smartphone manufacturers when you drill further into the numbers. Smartphone shipments for Samsung fell 10.4% on a year-on-year basis, with Chinese competitors Huawei and Xiaomi appearing to take the lost market share. 

However, unlike Apple's iPhone X, Samsung's latest iPhone challenger -- the Galaxy S9 -- appears to be a flop. An analyst quoted by The Wall Street Journal estimated that the company will ship 31 million S9 units in calendar year 2018, 10 million fewer than Apple shipped in this quarter alone.

The takeaway is clear: Apple is dominating the higher-end smartphone market and growing revenue double-digits in a mature industry.  

Apple's iPhone X strategy was correct

Many analysts were skeptical of the new iPhone's high selling prices and believed the company would sell fewer devices as a result. But the combination of Apple's strong iPhone revenue growth alongside year-over-year shipment growth in a declining market points to analyst consensus being wrong.

When the company reported third quarter earnings, Apple beat analyst expectations on the top line by posting $53.3 billion and provided a solid bottom-line EPS beat of $2.34. Even more impressive were that these figures increased 17% and 40% over last year's performance, thanks in large part to the company's iPhone segment

What this signifies is that Apple's premium-pricing strategy was tailored fit to grow revenue in a slowing market. 

 

Jamal Carnette, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.