Apple breaks records in Q1 fuelled by iPhone 11 demand

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Although Apple has posted solid quarterly results, spurred by its flagship iPhone 11 and iPhone 11 Pro smartphones, most South Africans still can’t afford these devices.

This is according to analysts, speaking after the Cupertino-based electronics giant yesterday announced financial results for its fiscal 2020 first quarter ended 28 December 2019.

The company posted quarterly revenue of $91.8 billion, an increase of 9% from the year-ago quarter and an all-time record, and quarterly earnings per diluted share of $4.99, up 19%, also an all-time record.

International sales accounted for 61% of the quarter’s revenue.

“We are thrilled to report Apple’s highest quarterly revenue ever, fuelled by strong demand for our iPhone 11 and iPhone 11 Pro models, and all-time records for services and wearables,” says Apple CEO Tim Cook.

“During the holiday quarter, our active installed base of devices grew in each of our geographic segments and has now reached over 1.5 billion. We see this as a powerful testament to the satisfaction, engagement and loyalty of our customers – and a great driver of our growth across the board.”

“Our very strong business performance drove an all-time net income record of $22.2 billion and generated operating cash flow of $30.5 billion,” says Apple CFO Luca Maestri.

“We also returned nearly $25 billion to shareholders during the quarter, including $20 billion in share repurchases and $3.5 billion in dividends and equivalents, as we maintain our target of reaching a net cash-neutral position over time.”

Targeting the elite

In the South African market, Arnold Ponela, research analyst for mobile devices and image printing and document solutions at IDC, comments that Apple is very popular in the country, especially among the high-income earners.

However, he says the only challenge is that Apple products are a bit expensive so most people cannot afford them.

For instance, he notes, the base iPhone 11 officially launched at R15 000. “Their strategy has always been to focus on a certain niche market and they have been doing very well,” Ponela says.

“In South Africa, Apple products are only afforded by a few elite and their strategy is to focus on value. In terms of value, Apple only competes with Samsung. Huawei has accelerated its adoption of new technologies and this is definitely a threat to Apple. The first quarter of 2020 will show us if Huawei will really topple Apple in the market for flagship phones.”

He believes that given the increasing competition in the market and the decrease in disposable income, it’s going to be very hard for Apple to overtake Samsung and Huawei in SA.

“It’s also important to note that Apple’s main focus has never been unit growth but increasing their value share through selling premium devices.”

However, Ponela points out that Apple will soon release a more affordable option in the iPhone SE 2.

He believes this will help boost sales in SA as the market is price-sensitive and mainly driven by promotions.

“People love Apple products but, unfortunately, the price of these products makes it very difficult for most consumers to get these products. Hopefully, the launch of an entry-level iPhone will be a game-changer.

Recovering its mojo

Arthur Goldstuck, MD of World Wide Worx, concurs, saying despite the growth in more entry-level users as a result of the refurbishment programme in SA, the iPhone remains largely a high-end device, with most of the market unable to afford the new handsets during their release phases.

“That's when most sales happen. Huawei and Samsung have wide selections of both mid-range and entry-level smartphones, so Apple can't compete on volume.”

Nonetheless, he points out the iPhone 11 range has given Apple a big boost in SA, finally bringing it back on par with the flagship devices from Samsung and Huawei.

“It [Apple] had seemed to lose the edge in recent years, and the 11 range, especially the Pro Max, showed it can still compete powerfully at the high end.

“At the same time, the Core Group has been very effective in both its trade-in strategy and making older iPhones available at more widely accessible prices. This means that, as many people are upgrading to the latest Apple handsets, a large amount is entering the iPhone ecosystem with devices like the iPhone 6 and 7. This builds the overall user base significantly,” says Goldstuck.

On Apple’s results, he comments: “The growth is, on the one hand, a factor of a successful launch of the 11 range and its positive reception by critics and users.

“On the other hand, the same quarter last year was dismal, so it set a low bar. With a well-received handset as well as stellar sales of the airpods, the growth is not a big surprise. The airpods, however, helped give it an extra push into record performance.”

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