Tim Cook did something unusual on last night's earnings call, sending a signal about Apple's shrinking universe

REUTERS/Carlo Allegri

Apple Chief Executive Officer Tim Cook.

• Tim Cook refused to talk about "Android switchers" on Apple's earnings call last night.
• iPhone sales have gone into decline despite the launch of iPhone X.
• Apple only showed revenue growth because of the high price of iPhone X.
• This signals danger for Apple: It is charging more, in a shrinking universe, for a product that may no longer be observably better than its cheaper rivals.

Apple CEO Tim Cook did something really unusual on last night's earnings call, and it sends a signal about the effect of iPhone X on the company's business: He refused to answer a question about "Android switchers."

About two-thirds of the way through the call, analyst Laura Martin of Needham & Company asked Cook, "Switchers in the quarter, you often give us switchers." That statement is meaningless unless you know the context: For years, Cook has given analysts some perspective on the number of people switching from Android phones into iPhone, as a sign of Apple's growing success. On one call in 2015, he mentioned "Android switchers" five times.

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But not last night.

In response to Martin, Cook said only, "it is so early on this product cycle, particularly with the iPhone X only starting in November, that we do not feel we have data at this point that would be very meaningful to share. And so I'll pump that question until next time around."

It is difficult to believe that Apple suddenly doesn't have "meaningful" data on how many people are choosing iPhone over Android.

The topline numbers, of course, were negative: The launch of iPhone X - which costs around $1,000 (or £1,000 in the UK) - sent unit sales into a 1% decline:

BI Intelligence

That is an embarrassing slide given the flagship device was launched only a few weeks ago. Historically, the last quarter has always been Apple's biggest - it's when the sexy new iPhone is always launched.

Not this time.

This problem is not of Apple's making, of course. The smartphone market globally is now fully saturated. Everyone has one, and sales have gone into decline, as this chart from the Asian investment bank CLSA shows:

CLSA

Historically, Apple has always underperformed the market. Its iPhone growth is almost always less than the growth of the market as a whole.

This chart from Deutsche Bank illustrates the problem. Apple is unable to defy gravity:

Deutsche Bank

Apple was only able to show rising revenues because the excessive price of iPhone X boosted dollar sales. The average selling price (ASP) of the iPhone is $796 (£560), at least $100 (£70) more than it used to be:

BI Intelligence

The obvious conclusion here is that Apple is selling fewer iPhones at higher prices. The size of its universe is shrinking, although it is charging its remaining customers more.

That sounds bad, but historically Apple has comforted itself with its massive "installed base" of older iPhone users. Those phones last on average three years, and are heavily used to buy apps, music and movies, via iTunes and the App Store. Apple's "Services" business is often regarded as the great new saviour of the company, because it can - in theory - be expanded even if Apple doesn't expand its universe of actual devices.

But even services stalled last night:

BI Intelligence

There was year-on-year growth, but not quarter-on-quarter growth. Services usually grows sequentially in Apple's fiscal Q1 2018. Not this time. Services declined as a percentage of total sales, too, falling from over 15% of sales down to 10% of sales.

None of these developments signal anything good for Apple.

While it is certainly the case that Apple has always creamed off the high-end customers, and reaped the profits, the price of iPhone X appears to have tested even its most loyal fans. Why buy a great iPhone for $1,000 when you can get a pretty-much-just-as-good one for hundreds less?

Finally, the universe outside Apple has also changed dramatically. Three or four years ago, Android phones were noticeably not as good as iPhone. There was an obvious justification to choose iPhone over Android: iPhones were more reliable, and the camera on the phone was often better. But now Google's Pixel phones and Samsung's Galaxy and Note lines have caught up. iPhone users are often surprised at how much they like high-end Androids. And those Androids are usually cheaper than iPhone X.

It's not until you look at global market share that you realise just how few people use iPhones. Of 10 regions tracked by Kantar, Android has more than 70% market share in six:

Kantar

This is the danger for Apple: It is charging more, in a shrinking universe, for a product that may no longer be observably better than its cheaper rivals.

Which is one possible explanation for why Cook didn't want to talk about the switchers last night.

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