Secret's out: Apple iPhone sales are sliding

(MoneyWatch) COMMENTARY Apple's (AAPL) latest earnings were as impressive as you have come to expect from the tech giant: $39.2 billion in revenue, $11.6 billion in net profit, and 35.1 million iPhones sold in the company's second quarter.

That last number is especially important for Apple because the smartphones remain its major financial driver. Some analysts had begun to worry that Apple might have lost some of its luster, what with carriers complaining about the  subsidies they must pay to maintain the required profit margin on iPhones without passing the pain onto consumers. No other product has so much of its price coming from deep-pocketed corporations. 

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But, as often happens in the rush of earnings reporting, more subtle details go missing. For Apple, there seems to be an increasing pattern of seasonality for the iPhone if you look not at year-over-year changes, but sequential quarters.

Remember for a moment that Apple's fiscal year ends in September. So its first quarter runs October through December, or the year-end holiday season, while Q2 includes January, February, and March. In FY 2010, iPhone unit sales were flat between Q1 (the 2009 holiday season) and Q2, while dollar sales were down 2 percent. Note that there's nothing unusual in a consumer electronics company seeing seasonality in its sales.

But things seemed to click into gear for Apple in FY 2011. Between Q1, which included a generally depressed 2010 holiday shopping season, and Q2, iPhone unit sales were up 15 percent and dollar sales grew by 17 percent. The cause wasn't the release of new models coming out in the fall, as that happened in 2011 (which would officially be FY 2012 for Apple). A more likely factor boosting sales was new carriers offering iPhones.

But that pattern is over. In FY 2012, when the iPhone 4S came out in October, unit sales between the holiday season and the latest quarter were down 5 percent, with dollar sales off 7 percent. That's the most pronounced decline in years. One possible explanation is that the fall rush for iPhones, fueled by pent-up demand because Apple hadn't released a new model during the summer as it usually did, increased sales to a degree that could not be sustained.

Yes, iPhone sales did jump between the first and second quarters of FY 2011, but the largest unit sales in a single quarter before FY2012 was 20.34 million between April and June of 2011.

Maybe Apple sales will return to their previous seasonality (iPads saw a 24 percent unit and 28 percent dollar drop between the two quarters, for instance.) The real question is just how far the company's sales can expand, especially when competing Android devices outsell the iPhone. Eventually, the switch from feature phones to smartphones will have largely taken place, and the growth that many seem to be taking for granted will rapidly slow.

[eriksherman]

OK, I double checked Apple's filings and have to concede that the FY2011 Q1 ended on December 25 and the FY2012 Q1 ended on December 31 (which seems incredibly bizarre to me). But I don't buy the notion that sales between December 25 and December 31 -- after Christmas -- were at anywhere near the pace before 12/25 and explain why Q2 in FY2011 was 15 percent ahead in unit sales of Q1. Consumer sales slow down after Christmas. Yes, there is still purchasing, but not at the same rate. The argument that an extra week is the explanation assumes completely flat weekly sales throughout the entire quarter, and that doesn't fit with historic experience.

[icposse2000]

Q1 2012 had 14 weeks. Apple sold 37 million iPhones for an average of 2.6 million/week.
Q2 2012 had 13 weeks. Apple sold 35.1 million iPhones for an average of 2.7 million/week.

In other words, despite the fact that it wasn't a holiday quarter, iPhone sales INCREASED on a weekly basis last quarter. The entire premise of your article is flawed unless you take into account that 14 week quarters occur with some regularity due to the fact that the calendar year isn't exactly 52 weeks long. Did you analyze how long the quarters were that gave you the "historical" perspective that Apple is apparently no longer meeting?

No offense, but this is a pretty basic mistake and brings into question how well researched and thought out this article was. The fact that it has CBS's name next to it doesn't exactly reflect well on them.

[eriksherman]

Offense not taken, and I hope you don't take any when I show that your point actually doesn't make any sense. Apple reports on the actual days in the month, not the number of weeks, and sales happen virtually every day of each month. So, in its fiscal Q1 (last calendar quarter) there are 92 days (31 in October and December, 30 in November). In Q2 (calendar Q1) there were 89 in 2012 but 88 in 2011 (31 in January and March and 28 in February in 2012 but 27 in 2011). So, in FY 2011, Q2 had fewer sales than Q1. In FY 2012, Q2 had more sales than Q1. But FY2012 Q2 had one more day than FY2011 Q2.

That's the historic and *financial* history. Typically, counting the number of sales weeks becomes important if you're in a business that is largely Monday through Friday (like many b-to-b operations) and where, therefore, the number of full weeks becomes important and typically when you consider sales in a month.

And, not to rub things in, but did you actually look through a calendar? If you do, as I did, because I'm happy to consider your point, you'll see that there were 13 weeks in the period of October 2011 through December 2011 (actually, 13 weeks and 2 days) as well October 2012 through December 2012. So even on a surface level, your argument doesn't hold water.

[CraigDV]

If you are going to look at the whole picture, sales to the whole world have to be considered. IPhone 4 sales outside USA have only just started and China alone has 600 million cell phone users that are hungry for Apple products.

[eriksherman]

And sales of competing products from companies like Samsung have only just started. You can assume that Chinese consumers would want *only* iPhones, just as you could assume the same of other countries. But smartphone market shares would suggest that the assumption is wrong.

[WolfSnap]

How much were you paid to write this? Let's look at FACTS for a moment, shall we?

You got the number of iPhones sold WRONG.

You're drawing conclusions about how Android is outselling Apple when in fact that's not true. Apple represents over 51% of Verizon handset sales, and 78% of AT&T handset sales in the latest quarter. Apple iPhone is from ONE VENDOR (Apple). Android is a software that is used by MANY vendors. So, what's really happening is that ONE VENDOR (Apple) is outselling ALL OTHER VENDORS COMBINED (who use the Android software to create their phones). Yeah, that's horrible...

Apple managed to sell almost as many iPhones THIS quarter as it did LAST quarter (which included Christmas). That's not slipping; that's selling a boat-load of iPhones at a time that other companies are complaining about slow sales.

Seriously, get a clue.

[eriksherman]

Apologies and quite right - I accidentally swapped the 1 and the 5. Probably a combination of too little sleep while traveling and trying to write this on a tablet. (I see myself developing a love/hate relationship with the form factor.)

However, if you want to talk facts, you're off in saying that Apple outsells all other handset vendors combined - way off. I'll assume for a moment that you meant to compare smartphone sales. Even then, while Samsung has ceased reporting unit sales, estimates have them about par, if not leading, Apple. Units, that is, not dollars. If you want to compare Apple against all Android handset sales - and move beyond a US-centric market view, because there's a lot more to the world than here - then, no, it's not even close.

And, if you read what I wrote, I was talking about a return to seasonality of sales, not the continuing surge that happened in its last fiscal year at the same time. So, other than inverting the two digits, I think your comments are off.

[TopDollar47]

Great ANAL-ysis dude! - even if it was factual. Apple sold 35.1M iPhones last quarter not 31.5M. Nice try though! How convenient a typo!

But even aside from that, what you're saying is that because they sold more (37.04M, not a lot more) in the previous quarter which was a holiday quarter and also happened to be longer than usual this year (14 weeks, that extra week alone would have put the sales higher this quarter if it was included) and which had a new iPhone release (which it usually doesn't) you take that as a sign that iPhone sales are "sliding"??

LOL!!!

Now THAT is comedy!

[eriksherman]

Look at my comment to the other person who wanted to argue about the number of weeks - the point is factually incorrect (look at the calendar again) and also makes no sense given that Apple reports results for the days in a quarter, not "weeks," so there wasn't a magical extra 7 days that appeared.

[Bhayes850]

'sales sliding???' Are you that desperate for readers? Apple just sold 31.5 million iPhones in the 2nd quarter alone. What phone manufacturer wouldn't kill for 'sliding numbers' like that. I thought CBS Money Watch was a serious place to get good sound financial news not some place for link bait titles and clown analysis. Guess I was wrong.

[beazleyjj]

thats exactly what i was thinking....he looks like a liberal, they all hate to see successful capitalism at work......go apple go

[eriksherman]

It's a return to a seasonal slide - and a big quarter-to-quarter change from last year. Of course, you can choose to look only at the clearly impressive year-over-year figures and ignore what you don't like, if you prefer.

[geekboy_18]

Interesting. And the fact that iPhone unit sales are up 88% from the same quarter one year ago means ... what exactly? I am curious as to how that fits into your assertion that the sales are "sliding".

I await enlightenment ...

[eriksherman]

It means they're selling a lot more, but that there's a change in the sales pattern. I should also say that in my original headline (and I rarely get last say on headlines), I mentioned a "secret slide," which is closer to the point.

[tomanyt]

As soon as my contract expires I am dumping the Iphone. What a complete waste of money.

[GregInPrague]

says the plant who is posting from his Android device...

[hypnotoad72]

GreginPrague -

Or a Windows Phone plant... ? Or even a plain jane phone without "smartphone"-anything attached...