Worldwide sales of smartphones continue to weaken. While the pandemic and subsequent supply chain problems make it difficult to jump to sweeping conclusions based on recent smartphone market data, we're still nowhere near 2016's frenzied level of buying. And no matter how you slice it, the bigger sales trend is still pointed downward.
There's one glaring exception to this persistent soft patch, though. While almost every company saw smartphone sales slow through 2019, one manufacturer has managed to grow its unit sales since then. You can probably guess which company that is.
Shrugging off the headwind
The smartphone business is still solid enough, though clearly not what it used to be. International Data Corp. (IDC) reports a total of 314.1 million smartphones were shipped during the first quarter of this year, down 8.9% from the year-ago figure of 344.8 million.
Perhaps a more meaningful comparison is the COVID-crimped figure of 275.8 million from the first quarter of 2020, or the 312.3 million deliveries seen in the first quarter of 2019. Whatever number you're considering, it's a less-than-impressive result this time around. Not even Samsung or rapidly growing manufacturers like Xiaomi (XIACY), OPPO, or Vivo were able to bump up their first-quarter deliveries.
|Company||Q1 2022 Unit Shipments||Q1 2021 Unit Shipments||Increase/(Decline)|
|Samsung||73.6 million||74.5 million||(1.2%)|
|Apple||56.5 million||55.3 million||2.2%|
|Xiaomi||39.9 million||48.6 million||(17.8%)|
|OPPO||27.4 million||37.5 million||(26.8%)|
|Vivo||25.3 million||35 million||(27.7%)|
|Others||91.4 million||93.9 million||(2.7%)|
|Total||314.1 million||344.8 million||(8.9%)|
Were this little feat the first time it happened, it might be dismissible. But it's not the first time we've seen this (or the second, or the third). Apple has somehow managed to ramp up shipments of its flagship device since 2019's lull even at a time when it arguably shouldn't have been able to do so.
This is clearly good news, but it's made even better given that rising sales in a shrinking market translate into significant market share growth. While not plotted on the chart, the iPhone has accounted for 17.7% of the smartphone market's unit sales over the course of the past four quarters, up from 2019's low of 13.3%.
2 big takeaways
Apple shareholders should certainly celebrate the progress, but there are two far bigger implications here.
The first of these is obvious: Market saturation isn't nearly the headwind some feared it might be for Apple. Clearly, consumers are not only embracing the iPhone, but dropping other brands and operating systems to step into Apple's iOS ecosystem.
The second of these implications is related to the first one: As Apple matures into a company that's less about sales of hardware and more about higher-margin services revenue (apps, streaming video, and other digital goods), more iPhones in consumers' hands mean more services business. To this end, Apple's services revenue of $19.8 billion last quarter made it the company's fastest-growing business at 17.1%, accounting for roughly one-fifth of its top line but more than a third of the company's first-quarter income.
That's what makes Goldman Sachs' (GS 1.60%) per-user revenue outlook for iPhone owners so compelling. While the analytics outfit does believe the average revenue per user (or ARPU) will peel back a bit from its pandemic-prompted growth, the services portion of the iPhone's ARPU is apt to hold steady at $62 this year. Per-user gross profits should roll in close to last year's elevated levels as well.
All of a sudden, the debate surrounding Apple's wide price-range strategy for the iPhone doesn't matter so much. Consumers looking for a premium device can still have one at a premium price, while budget-minded consumers can purchase a lower-cost version of the device. Both of them are fueling the company's growing services business.
Embrace the evolution
It's not a reason in and of itself to buy Apple shares if you don't own them already. But for any current and prospective shareholders worried that the stock is vulnerable to a smartphone headwind, that's certainly not a reason to steer clear. The iPhone remains a workhorse, even if that work is increasingly about steering people toward a secondary profit center.
Indeed, the service business boasts much better profit margins than the iPhone itself does, meaning Apple might be wise to make a point of releasing even more lower-cost versions of the popular smartphone.