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Whenever an article discusses smartphone or smartphone operating system market share, the response from Apple fans is consistent and ubiquitous: Apple doesn't care about market share one bit. Last year, Apple VP Greg Joswiak was widely paraphrased as stating that Apple doesn't care about market share, only about making the best products with the best experience.This lends credence behind this line of reasoning
Apple fans consider profit a better benchmark for Apple's smartphone performance. And when it comes to that data point, there's no better company than Apple. A recent Canaccord Genuity study found that Apple booked 86% of all handset industry profits in the third quarter of 2014-- a figure that's increasing while Apple iPhone continues to steal profit away from No. 1 smartphone maker Samsung .
However, it appears Mr. Joswiak was misinterpreted with his oft-mentioned comment. Here's what he actually said [emphasis added]:
We have no shortage of either developers or customers ... maybe it is nave, but we [believe] that if we make a better product and a better experience, that there will always be a healthy market for that.And a healthy market doesn't mean we have to be market-share leader.
Not being the market-share leader is rather far from not worrying about market share. Here's why Apple cares about market share.
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In the developed market, market-share growth and revenue growth are synonymous
If you use the widely accepted definition of market share as "the percentage of an industry or market's total sales that is earned by a particular company over a specific time period," you can see how Apple's management would be at odds with investors, who want the company to grow revenue and profit, if it was unconcerned with market share.
In developing markets, smartphone makers could still grow revenue at a healthy clip while experiencing poor/declining market share due to total market growth; but Apple tends to produce its revenue from the developed markets of the Americas, Europe, and Japan. The chart below gives you more context:
Source: Apple's 10K. Developed revenue per total revenue ex-retail calculation = (Revenue from Americas + Europe + Japan)/(Total Revenue-Retail) Retail excluded due to non-disclosure of individual markets as the company files only U.S. and International results.
Developed Revenue ex-retail percentages: 2012: 75.8%; 2013: 75.7%; 2014: 75%.
While it should be noted this is total revenue -- Apple doesn't break down iPhone sales in regional markets -- this is a rather useful proxy for Apple's developed market dependence. For perspective, on an ex-retail basis, Apple reported a remarkably stable 75%-76% of its total revenue coming from the Americas, Europe, and Japan during the last three years.
In these markets, Apple will need to increase iPhone market share to increase its revenue due to the slowing smartphone penetration growth. Simply put, as more people own smartphones, Apple will need to own more of the smartphone market in order to enrich shareholders. While much is made of China's smartphone market due to its tremendous growth, Apple is still developed-market dependent, and will continue to be so for the intermediate future.
Let's admit market share is important to Apple... to an extent
While we can all admit Apple isn't pursuing Samsung's bifurcated strategy of attacking the low- and high-end markets, the goal of the company is to sell as many units as it can in the high-end. As previously mentioned, that requires growing sales and market share in the developed markets. Yes, the company could raise iPhone prices and grow profit without growing market share in the short term; but ultimately, the company would need to grow market share to grow revenue. Smartphones aren't totally inelastic goods.
I think the real point is that Apple isn't willing to sacrifice profit, pricing, and its focus on the user experience in an attempt to gain market share simply for the sake of growing market share. That's entirely different than the company not caring about market share. Let's change the conversation to address this important nuance.
The article Yes, Apple, Inc. Cares About Market Share originally appeared on Fool.com.
Jamal Carnette owns shares of Apple and would probably pay double what Apple's asking price for the new iPhone. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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