You’d be forgiven for being skeptical about the iPhone 12’s stellar performance this past quarter. It’s been a rough couple of years for smartphones — a phenomenon from which not even Apple was immune.
Frankly, after staring down these macro trends over the last couple of years, it seemed like the days of phone-fueled earnings reports were behind the company as its expanding services portfolio started to become its primary financial driver.
I capped off my mobile coverage last year with an article titled, “Not even 5G could rescue smartphone sales in 2020.” Among the figures cited were two year-over-year drops of 20% for the first two quarters, followed by a global decline of 5.7% for Q3. As we noted at the time, a mere 5.7% drop constituted good news in 2020.
The straightforward premise of the piece was that COVID-19 subverted industry expectations that 5G would finally reverse declining smartphone sales, even if only temporarily. That all came with the important caveat that Apple’s numbers would likely have a big impact the following quarter.
Ahead of yesterday’s earnings, Morgan Stanley noted, “In our view, the iPhone 12 has been Apple’s most successful product launch in the last five years.” Such a sentiment may have seemed like hyperbole in the lead-up to the news, but in hindsight, it’s hard to argue, with five years having passed since the launch of the first Apple Watch.
The iPhone X was more of a radical departure for the company, but the 12 is proving to be a massive hit. The recent launch of Apple Silicon Macs juiced sales in that product category rising 21% year over year, but ultimately the company’s computer business is a drop in the bucket compared to phone sales.
For the final quarter of 2020, Apple earnings surpassed $100 billion — a first. That comes on the back of $65.68 billion in revenue from iPhones alone, beating the company’s own expectations. Analysts are suggesting the killer holiday quarter is the beginning of a “supercycle” for the product line. We’ve noted before the many factors leading consumers to slow down upgrade cycles (bad economy, expensive unit prices, more durable hardware), but the arrival of a major upgrade like 5G offered the most compelling reason for Apple owners to upgrade in years.
Apple was far from the first company to bring 5G to handsets — in fact, it’s probably the last major smartphone manufacturer that can reasonably market 5G as a compelling new feature. But the stars aligned here, in spite of (or perhaps, to some degree because of) pandemic-related manufacturing delays that pushed back the product’s launch.
For one thing, 5G networks are significantly more ubiquitous in various parts of the world than they were when, say, Samsung released its first 5G phone back in mid-2019. Carriers have done plenty of the heavy lifting in educating consumers about the value of the next-generation technology. The late-October release date timed the device perfectly to be a major holiday hit. And then, of course, there’s the fact that the company released four devices with the technology all at once.
One of the more remarkable things about 5G is how quickly it trickled down into mid-range phones, so no surprise that Apple was out of the gate with a $799 5G handset. The days of coasting on premium flagship sales seem over for a lot of companies.
Smartphone sales slow decline in Q4, with a big assist from Apple
And then there’s the matter of China. The company had seen disappointing sales in the world’s largest smartphone market. This quarter, however, things ticked up 57% year over year. That surge appears to be due in large part to pent up demand for a 5G iPhone. “We had two of the top-three selling smartphones in urban China,” Tim Cook noted in an interview with Reuters this week.
As for how this news bodes for the industry at large, Apple’s success this quarter was kind of a perfect storm. A lot of internal and external factors lined up to create such an expectation-busting quarter. Apple is such an odd duck in the industry that it’s not necessarily wise to use it as a barometer for future trends.
Even so, it’s safe to project a rebound for the industry at large in 2021. Last year, Canalys forecasted a 9.9% jump in smartphone sales for the year, following an overall yearly decline of 10.7%. Obviously iPhone sales are going to be a big part of that number, but some larger factors will contribute to the rebound here.
The availability of vaccines will be a factor, hopefully contributing to more economic stability and some return to normalcy, which should juice demand for mobile sales. With 5G penetration having grown by leaps and bounds in China and the U.S., other markets like Europe are on track to see some major growth in 2021.
I would, however, caution against projecting sustained growth for the category here. “Supercycles” are super for a reason: They don’t happen that often. 5G and other factors may be contributing to a bounce back in sales, but next-gen wireless doesn’t come every year. It will be on manufacturers to find compelling reasons to keep buyers coming back.
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