Many still believe that high-end smartphone growth is slowing significantly, but seeing the results of Apple's (AAPL 2.15%) iPhone 5s/5c launch calls into question whether Apple can get by simply by continuing to take more share at the high end. In particular, in the same year in which we saw signs of Samsung's Galaxy S IV sales fall short of expectations, we've just witnessed a veritable blowout in the iPhone 5s/5c sales. That being said, despite some impressive numbers, it's worth taking a deeper look into the recently announced blowout iPhone sales numbers.
Are these numbers comparable to last year's?
Each year, Apple announces the three-day sales results of its latest iPhone. This year, the combined sales of the iPhone 5s/5c hit a record 9 million units – far exceeding last year's 5 million. Now, keep in mind that this year, Apple's phones went on sale in China at the initial launch (which hasn't been the case in previous years – last year, the later Chinese launch led to 2 million units sold in the first weekend), so this means that the year-over-year comparison isn't quite comparable.
Another thing to keep in mind is that these are sales of the iPhone 5s and the 5c combined. What's interesting here is that, traditionally speaking, whenever a new flagship iPhone launches, the previous flagship gets a price-cut to a $99 starting price with a two year contract. This, of course, draws in buyers of the previous year's model. With the launch of the 5c, the iPhone 5 gets discontinued (and taken out of the spotlight) which means that a solid portion of folks who would have bought the last generation flagship on the price drop are now going to pick up the 5c, and are probably going to do so at launch rather than wait.
So, while the numbers are certainly impressive, it's important to realize that they're not quite comparable to the numbers from previous years. That being said, there are still some important positives here.
Guidance raised, iPhone 5s selling like hotcakes, but uneasiness remains
I'm most certainly encouraged by the fact that Apple's iPhone 5s stock has sold out and that it is rushing to build more to meet demand. For an investor, there's nothing quite as sweet as finding out the company that you're part-owner of can't sell enough of its flagship product. However, what I really liked was that Apple revised its forecast for the quarter to the high end of its previously issued $34 billion-$37 billion range. This means that for the third quarter, investors are most likely going to see modest sales growth from $35.97 billion in the same period last year.
However, I'm still concerned about how Apple will achieve material top-line growth from here. I expect that the company will do a nice iPad lineup refresh, and the new MacBook Pro lineup should be ready to go any day now. I'm also expecting that Apple may just introduce a few new device categories that could surprise investors, but there's still plenty of uncertainty there. That being said, sell-side estimates are calling for 8.4% top line growth this year with next year slowing down to just 6.5%, so it's not as though at 11.5 times forward earnings investors are expecting miracles.
Don't forget about Google's Android and Microsoft's Nokia
The more troubling trend that even the most bullish case for Apple can't ignore is the continued rise of Android devices. While Apple's momentum in the high end is clear, I'm not ready to count Google (GOOG 0.42%) or Microsoft (MSFT 1.57%) out of the high-end race just yet. Google's acquisition of Motorola Mobility and Microsoft's acquisition of Nokia's handset business weren't frivolous--these ecosystem vendors mean business and are working on increasingly attractive designs.
It's too early to tell what the competitive landscape will look like over the next 5 years, but Apple's going to have an uphill battle in trying to defend its dominant position in this industry, particularly as Google's Motorola X and the Nokia Lumia are compelling offerings in their own right and should only get better as time goes on.
The Foolish bottom line
At the end of the day, Apple continues to be a cash-flow generating machine. Its products are best-in-class, and I don't expect that to change. What I do worry about – despite a very solid initial showing from the new iPhones – is that growth will continue to be a challenge going forward as the high end market slows down and competitive pressures pile on. That may keep the shares range-bound, and as a result, growth-oriented investors may want to look elsewhere, while income oriented ones may have fatter payouts to look forward to.
