Apple made a small change to the way it introduced its new iPhones this year, and its record-breaking holiday quarter proved it was a runaway success
- Apple's iPhone business made a big comeback in the holiday quarter, as the company posted a growth in year-over-year revenue for the first time in a year.
- It's a sign that Apple's iPhone 11 launch was a success, coming after third-party research firms had already estimated that sales were strong.
- Apple made a change to the way it positioned its new iPhones in 2019, opting to brand the least expensive new model as its flagship smartphone.
- That marks a departure from 2018, when it positioned the cheaper iPhone XR as an alternative to its flagship iPhone XS.
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Apple's smartphone business made a resounding comeback in the holiday quarter, resulting in an earnings beat that far surpassed Wall Street's expectations and shattered the company's all-time record with $91.8 billion in revenue. For Apple, it was more than just a strong quarter - it marked a critical recovery for the company's ever-important iPhone business, which had been suffering year-over-year declines for the past four consecutive fiscal quarters.
The better-than-expected results also served as evidence that Apple's iPhone 11 launch strategy worked. That's even despite the fact that expectations for last year's new iPhones were fairly low ahead of what's expected to be a "super cycle" for upgrades in 2020, thanks in part to the 5G compatibility Apple is rumored to be building into its next-generation smartphones.
Apple launched three new iPhones in September: the $700 iPhone 11, the $1,000 iPhone 11 Pro, and the $1,100 iPhone 11 Pro Max. When Apple announced the iPhone 11 at the Steve Jobs Theater on its campus last year, at first glance it may have seemed like Apple had dramatically cut the price of its flagship iPhone. After all, in 2018 it launched the flagship iPhone XS at $1,000.
But it didn't. Instead, it shook up the iPhone's branding strategy, this time opting to position the less expensive model as its flagship offering and the pricier models as "Pro" versions for power users.
The $700 iPhone 11, despite being Apple's flagship model, is really the successor to 2018's $750 iPhone XR - not the iPhone XS. Like the iPhone XR, the iPhone 11 comes in one size, is available in a variety of bright colors, and lacks some of the bells and whistles of its pricier siblings, such as an additional camera.
The decision to brand its least expensive new iPhone as its primary new model in 2019 marked a noticeable departure from 2018, when Apple launched the $1,000 iPhone XS and $1,100 iPhone XS Max as its flagships and positioned the iPhone XR as a less-expensive alternative that offers many similar features at a lower price.
Apple's stellar earnings and the rebound of its iPhone business could be seen as the largest piece of evidence yet that this iPhone 11 strategy worked. iPhone revenue reached $55.9 billion in Apple's fiscal first quarter of 2020, a jump from the $51.9 billion its smartphone division brought in during the same quarter one year ago.
The bar was a low one to clear; Apple issued a rare revision to its guidance ahead of last year's first quarter earnings partially driven by poorer-than-expected iPhone sales. But some analysts still perceived Apple's strong results as a sign that its iPhone business is back on the rise.
"Although we did not expect iPhone sales to be a material near-term driver of growth, we were encouraged by the 7.6% growth, as it accounted for 61% total sales for the quarter," D.A. Davidson analysts said in a note written by senior research analyst Tom Forte and senior research associate Elliot Alper. "We continue to see Apple as well-positioned to exploit the upcoming multi-year opportunity in 5G.
Dan Ives from Wedbush Securities shared a similar sentiment, calling Apple's iPhone 11 launch a "home run."
Third-party figures also suggest that the iPhone 11 lineup has been selling well. According to data from Consumer Intelligence Research Partners (CIRP), Apple's 2019 iPhones accounted for 69% of Apple's smartphone sales in the fourth quarter of 2019.
It's unclear precisely why Apple's iPhone 11 lineup is performing better than last year's model. But one reason could be this new pricing and branding strategy, considering recent evidence suggests that many consumers aren't willing to spend $1,000 or more on a new iPhone. Market research firm NPD Group reported in December that less than 10% of consumers are spending more than $1,000 on new mobile devices.
Plus, the data from CIRP also indicates that the cheaper iPhone 11 in particular has been a top seller, as it reported that the iPhone 11 alone accounted for 39% of Apple's iPhone sales in the fourth quarter of 2019. Older figures from CIRP dating back to last July also suggested that the less expensive iPhone XR was the company's most popular model.
The rebound also comes as the broader smartphone industry has started to show signs of growth after several consecutive quarters of declines, as the International Data Corporation recently reported. That too could have contributed to Apple's iPhone growth.
All told, Apple's earnings results combined with third-party projections suggest that the iPhone has a strong year ahead. That's as important as ever for Apple. Although the company proved it could still post revenue growth by boosting other burgeoning categories like wearables and services, those offerings are still largely tied to the iPhone.
CEO Tim Cook seemingly acknowledged this on the company's earnings call when asked about whether wearables like the Apple Watch and AirPods were bringing new consumers into Apple's ecosystem.
"I think each of our products can drive another product," Cook said. "I would think in that case, it's more likely that the iPhone comes first."
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