Apple (NASDAQ:AAPL) CEO Tim Cook has been forthright about his plans to grow iPhone revenue. While the overall smartphone market is slowing, Cook is looking to grow in developed markets by winning market share. On Apple's conference calls, Cook makes a point of discussing "Android Switchers," converts from Alphabet's (NASDAQ:GOOGL) (NASDAQ:GOOG) open-source ecosystem.
When it comes to mature markets, there's still no country more important than the United States. Cook indirectly gave insight into the U.S.'s contribution to Apple's top line when addressing currency fluctuations by noting that 66% of revenue came from abroad. The U.S. may not be as important as it once was, but the country's 34% revenue share is still Apple's largest. Although the majority of growth is coming from China, the Middle Kingdom only represented 24% of the company's revenue haul last quarter.
So as Apple's largest country by revenue, Apple's iPhone performance in the United States matters. This is why investors should take note of the most recent quarterly survey from comScore, which points to a tougher path forward for Apple's iPhone in the U.S. than Cook may care to admit.
Apple's user base market share contracted
According to comScore's data, Apple experienced a sequential decline in share of total U.S. smartphone subscribers in the last three months of 2015 versus the prior quarter. In comScore's survey conducted over the three months ended September, 43.6% of total U.S. smartphone subs were iPhone/iOS customers. In comScore's December survey, that number dropped 0.7 percentage points to 42.9%. Picking up Apple's lost market share was a host of Android vendors, most notably Samsung, which increased its market share by 0.8 percentage points from 27.6% in September's quarter to 28.4% in December. Alphabet's Android increased its operating-system market share 1 full percentage point to 53.3% in the December quarter.
Apple's market share loss is notable on two levels. First, Apple historically overperforms in the last calendar quarter of the year as its new units are released in late September and are among the most-desired holiday presents. For Apple to lose market share during this period to Samsung, which presented no high-end models in the U.S. during that period, is interesting.
Additionally, although 0.7 percentage points seems like a small figure, comScore measures changes in user base. Unlike market share surveys which measure unit shipments, user base surveys include existing subscribers. While unit shipment surveys generally vary from quarter to quarter because of seasonality and new products, user-base surveys migrate slower but are more reflective of the overall landscape.
Simply put, a 0.7-percentage-point operating-system drop flies in the face of Cook's record-high Android Switchers commentary that Cook makes a point to mention on every earnings call. In the recently completed first fiscal quarter, Cook reported a greater number of Android switchers than ever before.
Cook and comScore are reporting two different types of data
To be fair to Cook, there's data mismatch between the figures he conveys and comScore's data that could explain these differences. The big difference is that Cook is reporting worldwide results. China in particular has seen a surge in Apple conversions to the detriment to Android-forked providers. Second, comScore's data is for subscribers over age 13. It's possible (but unlikely) that Apple has a lock on the pre-teen market that would boost its reported switch rate while remaining unreported in comScore's survey.
Finally, user-base calculations include new smartphone users, 5 million additional U.S. users in the December quarter according to comScore, while Apple's switch rate percentage is based on existing users. Any wide-scale differences of buying behavior between new users and existing smartphone owners would result in different results between Cook's proclamations and comScore's report. It stands to reason that at this point, new U.S. smartphone users are tech-and-change-averse laggards and are more concerned with price points than features and user experience -- these consumers are a more natural fit for Android's high-end handset manufacturers.
That said, it will be interesting to see Cook's commentary on Android Switchers going forward.