1. Rapid consumer adoption of the iPad
Apple Inc. (NASDAQ:AAPL)’s competition in tablet markets where it is a clear leader is a lot lower compared to the smartphone business. The 19.5 million iPads the company sold in the past quarter led to revenues of $8.7 billion. And the Average Selling Price (ASP) trickled down to $449 reflecting a small sequential quarter-over-quarter decline of ~$18 per unit. This was driven by the rapid consumer adoption of the iPad mini which comes at a lower price point for the company. The product was very well received as Apple couldn’t meet the demands for the iPad Mini in the previous quarter.
Apple Inc. (NASDAQ:AAPL) continues to hold more than 39% of tablet market share in Q1 CY2013, according to IDC. However, competition is expected to heat up even more as other firms enter the market with newer devices. Samsung held the second place in the tablet marketplace with 17.9% market share thanks to Google Inc (NASDAQ:GOOG)‘s Android. And Nexus 7 maker, ASUS and Amazon.com, Inc. (NASDAQ:AMZN) round off the top 4 players in the most recent quarter. Surprisingly, Amazon.com, Inc. (NASDAQ:AMZN)’s tablet shipments couldn’t cross the 2 million mark, very likely due to the seasonal impacts of the first quarter.
| Exhibit: Top 5 Tablet Vendors, Shipments, and Market Share | |||||
|---|---|---|---|---|---|
| Vendor | 1Q13 Unit Shipments | 1Q13 Market Share | 1Q12 Unit Shipments | 1Q12 Market Share | Year-over-Year Growth |
| 1. Apple | 19.5 | 39.6% | 11.8 | 58.1% | 65.3% |
| 2. Samsung | 8.8 | 17.9% | 2.3 | 11.3% | 282.6% |
| 3. ASUS | 2.7 | 5.5% | 0.6 | 3.1% | 350.0% |
| 4. Amazon.com Inc. | 1.8 | 3.7% | 0.7 | 3.6% | 157.1% |
| 5. Microsoft | 0.9 | 1.8% | 0 | N/A | N/A |
| Others | 15.5 | 31.5% | 4.9 | 24.1% | 216.3% |
| Total | 49.2 | 100.0% | 20.3 | 100.0% | 142.4% |
| Source: IDC -May 2013 |
In spite of losing market share, the growth of the tablet market will substantially benefit Apple as the company ramps up its product lines with more lower priced tablets like the iPad Mini, and its unit shipments is more than 2 times the shipments of Samsung.
2. Ecosystem is coming of age; $16 billion run-rate
Apple Inc. (NASDAQ:AAPL)’s industry leading ecosystem continues to perform well with the presence of the App Store in 155 countries, and iTunes in 119 countries along with more than 300 million users on the iCloud. iTunes is crucial for long-term customer satisfaction and retention. Additionally, it attracts developers
App downloads on its massive ecosystem surpassed the 45 billion mark translating into revenues of more than $9 billion for app developers. And 74% of all app sales worldwide in the March quarter were through the App Store, according to Canalys. In addition to being a major hub for apps, the ecosystem now contains more than 35 million songs and 60,000 movie titles on demand and 1.75 million iBooks and 850,000 iOS apps, along with 350,000 apps for iPad only.
Apple Inc. (NASDAQ:AAPL)’s installed user base of more than 500 million users on iTunes has led to service sales revenue of more than $4.1 billion in the quarter. The service sales run rate of more than $16.4 billion can grow a lot more down the road, as more iOS devices are sold. Of the $4.1 billion, iTunes alone contributed $2.4 billion which represents a growth rate of 28% year-over-year, thanks to more movies, apps and music downloads.
The strong build-up of its ecosystem enhances the unique value proposition for customers, as their switching costs surge with more content in Apple’s ecosystem. This strengthens the firm’s moat. Apple’s revenues from the ecosystem made up only 9% of total sales, but in the future, there is substantial room for growth as more iOS devices are sold along with the addition of more digital content and apps in the ecosystem.
3. Retail sales have growth potential
The retail sales from Apple Inc. (NASDAQ:AAPL)’s stores made up only 12% of total sales in the last quarter, but one that is a growing and a stable one too. Apple’s retail stores have been holding up very well as the company’s iconic stores have been pulling in more and more customers. In Q2 FY2013, Apple Stores saw a decent uptick in store visitors with 91 million, which is up from the 85 million foot traffic the company saw a year ago. Total revenue from the retail stores stood at $5.2 billion, which represented a 19% year-over-year growth from $4.4 billion.
The segment’s operating income from its retail presence in 13 countries was $1.1 billion, which represents a 5% year-over-year decline, and was due to the lower prices in most hardware offerings of Apple Inc. (NASDAQ:AAPL). This trend can also be evidenced by the company’s decline in its overall gross margin as well.
Apple has 402 stores, with only 151 stores outside the U.S. And the company plans to expand its retail presence by opening 30 more stores in the next 6 months. As a result the company’s overall operating profit margin was negatively impacted. And Apple will be increasing its retail presence in China with the hope of doubling its presence from the current 11 locations within the next 2 years.
Going forward
Apple Inc. (NASDAQ:AAPL)’s sales of Macs have been relatively flat, but higher-end Macs lead to an increase in revenue even though the market for PCs seems to be bad overall with the global PC market contracting by 14% in the last three months, according to IDC. The size of the smartphone market should double between 2012-2016 and the tablet market is expected to grow even faster with units expected to hit 375 million by 2016 from the 125 million units in 2012, according to IDC.
In addition, retail sales and services sales should both see steady growth over the years. And Apple Inc. (NASDAQ:AAPL)’s fan base seems to be a distinct advantage for the company which leads to very high brand loyalty, and will be ready to snap up Apple products when they hit the market in the second half of 2013.
The article Apple: Three Bright Spots originally appeared on Fool.com.
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