Apple’s high prices offset unit decline, but cause problems for MNOs

After years of decline, smartphone average selling prices (ASPs) are bouncing back, as certain groups of consumers seem prepared to shell out for an aspirational model like the iPhone X. One thing that Qualcomm and Apple, amid their legal wars, agreed on in their respective results announcements was that ASPs were on the rise, and this is causing challenges for some operators.

On its own earnings call, BT said that the increase in handset acquisition costs had hit earnings at its mobile unit, EE, in the last quarter of 2017, though revenue and postpaid customer numbers were up. Marc Allera, CEO of BT Consumer, also pointed to the launch of three different Apple devices, instead of the usual one, as a weight on margins.

Apple has traditionally been a double-edged sword for MNOs because of its insistence on keeping iPhone prices and profits high. Some MNOs even rejected early iPhone models because of the likely impact on their margins. However, in recent years, Apple has been more flexible about pricing, introducing somewhat cheaper models alongside the annual flagship launch. But this year, it went to new pricing highs with the $1,000-plus iPhone X. Despite its hefty price tag, Apple CEO Tim Cook said it was the firm’s bestselling product in its first weeks on sale – though some reports indicated the company might reduce output of the X because of slowing sales since the holiday.

The precise impact on MNO finances has changed since the early iPhones, because most operators have abandoned subsidies and adopted various forms of handset financing and leasing instead. But they still have to buy the devices, however they account for them, and Allera said: “This has been an exceptional quarter, with Apple products in particular you would normally get one device launch – we actually had three. You’ll have seen from Apple’s results yesterday their average selling price was $796 versus around $700 the prior year and obviously we’ve experienced something similar.”

However, he said he was confident this investment in premium devices would “bear fruit” in terms of better retention and acquisition of customers. In BT’s fiscal Q317, EE revenue was up 4% year-on-year to £1.36bn but operating profit was down 16% to £62m. Total customer numbers fell because the loss of 299,000 prepaid users offset the addition of 235,000 postpaid, to end up with a total base of 29.8m.

Buoyed by the rise in prices, Apple’s fiscal first quarter saw iPhone revenues up 13% year-on-year to $61.6bn, even though it sold fewer units than some analysts had expected, leading to a revival of the usual fears that the era of iPhone growth is over for the company, and that it will left over-exposed to declines in its most important product.

In the quarter, Apple said it sold 77.3m iPhones, 1% lower than the year-ago quarter and below Wall Street projections of 80.2m. However, Apple said the quarter was a week shorter than the year-ago period, and it did not release the iPhone X until November, whereas it normally sells new iPhones from September.

But according to analysts at Strategy Analytics, Apple’s share of the global market in the quarter was 19%, down one percentage point on the previous year, based on shipments of 77.3m units.” The analysts wrote: “Despite robust iPhone X demand and an iPhone average selling price approaching an incredible $800, we note global iPhone volumes have actually declined on an annual basis for five of the past eight quarters. If Apple wants to expand shipment volumes in the future, it will need to launch a new wave of cheaper iPhones and start to push down, not up, the pricing curve.”

On the earnings call, Cook said: “The revenue growth from iPhone across all the geographic segments was in the double digits. Since the launch of iPhone X, it has been the most popular iPhone every week since, and that is even through today, through January. In urban China and the US, the top five smartphones last quarter were all iPhones.”

Total quarterly revenue was $88.3bn, up 13% year-on-year. Apple said it expected to report revenue of between $60bn and $62bn in its upcoming quarter, below the $65.9bn that analysts had expected. It claims it now has an installed base of devices of about 1.3bn, up 30% in two years.

This was in a quarter in which global smartphone shipments suffered their steepest ever decline, mainly because of a downturn in China, according to Strategy Analytics. Shipments were down 9% year-on-year to 400m units and in China, the world’s largest smartphone market, the figure was down 16%, because of “longer replacement rates, fewer operator subsidies and a general lack of wow models”.

For the full year, global shipments were up 1% compared to 2016 and topped 1.5bn.

Samsung ended Q4 2017 with market share of 18.6% on shipments of 74.4m, down 4% year-on-year. Strategy Analytics said Samsung is under pressure from Chinese rivals in China and India, “but remains the largest smartphone brand on a global basis, shipping an unmatched 317.5m units in full-year 2017”. Huawei was in third place with 10% share, but its goal to enter the top two will be hampered by its problems in the US.

In fourth place was another Chinese vendor, Oppo, but the analysts said the “golden age for Oppo is coming to an end” – its unit shipments were flat year-on-year, whereas in Q416, they had been up 99% on the year-ago quarter. By contrast, Xiaomi – in fifth place with 7% share – has bounced back from its doldrums and achieved 87% rise in shipments, accounting for many of Oppo’s challenges. The researchers said Xiaomi’s range, especially the Redmi Note 4, is proving “wildly popular” in India, but the firm’s growth is likely to slow in 2018 as rivals such as Huawei “fight back with improved or cheaper new designs”.