Analyst Toni Sacconaghi at Bernstein says, “The issue is all about if units are weak on iPhone what is that saying about the sustainability and health of that business and the sustainability and health of the growth of the installed base?
iPhone Sales Decline Concerns Investors
The real issue is that if you work from Apple’s guidance they’re saying effectively, or we impute, that iPhone units are going to decline five to ten percent in the December quarter. That is really the key controversy going forward. Can you have a healthy Apple if iPhone units are gonna decline going forward?
You may say, well they’re getting price increases and revenues are still going to increase this year. However, if units do go down this cycle, and it looks quite likely that they will, the market is effectively saying… we’re not sure that we can take price increases from you anymore Apple. If iPhone prices don’t go up and smartphone units are down this year and will likely continue to be down then all of a sudden you’re talking about 60 plus percent of the revenues of the company that are going down. If units aren’t fuelling the installed base, installed base drives services growth, then all of a sudden you have a different story.
Are Weaker iPhone Sales a Result of Price Increases?
That’s really the controversy. It’s not so much that they withdrew units. People really view the withdrawal of unit information as a validation that units are going to be weak this year. The issue is all about if units are weak on iPhone what is that saying about the sustainability and health of that business and the sustainability and health of the growth of the installed base?
I think there will be an investor debate and that’s what you’re seeing in the market’s reaction today about whether lower unit growth this year is portending something more structural going forward. It’s not black and white. The market was expecting units to be flat and ASPs to be strong. ASPs are going to be strong but units are going to be down, so the markets recalibrating that. Really the core strategic question is what is weaker unit growth saying about how consumers are responding to Apple’s prices and what does that mean about future unit growth and its implications for services growth?