iPhone 6s. Image source: Apple
Apple could sell 70 to 75 million iPhones this quarter if KGI Securities analyst Ming-Chi Kuo is correct. That would mean only modest or even negative growth for Apple's largest segment. It could also represent an important shift for the Cupertino tech giant, as the iPhone has not experienced an annual sales decline in any quarter since its debut.
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Hard to topAppleblew away expectations last January, posting amonstrousfiscal first quarter earnings report that included a new record for iPhone sales. From the beginning of October 2014 to the end of the year, Apple sold 74.5 million iPhones. That was up from 51 million in the same quarter a year before and 47.8 million a year before that.
Fears of a difficult comparison haveplaguedApple for most of the year. As early as July, sell-side analysts have warned investors to brace for slowing growth, arguing that it would be difficult for Apple to generate additional sales going forward. The move to larger screens with last year's iPhone 6 and iPhone 6 Plus may have prompted a record upgrade cycle, and the smartphone market is showing signs of saturation even in developing economies. According to Gartner, smartphone sales fell 4% in China during the second quarter.
Kuo's recent estimate of 70 to 75 million is slightly moreoptimisticthan his earlier outlook. In August, he was projecting sales of 65 to 75 million. Kuo's range leaves open the possibility of some sales growth, but it would amount to less than 1%.
Not just any old analystOf course, Kuo could be wrong, but he has a solid track record. He was early to report on the Apple Watch and iPad Pro, long before they had been announced. He predicted the rose gold iPhone earlier this year and stylus, the Apple Pencil. Last quarter, he expected Apple to sell 48.5 million iPhones -- the company sold just over 48 million.
Not every analyst agrees with Kuo. Pacific Crest is far more bearish, expecting iPhone sales ofjust 67 million. Others are moreoptimistic, with expectations running as high as 80 million.
Management disagreesModest or even slightly negative iPhone growth wouldn't be a disaster for Apple shareholders, but it could be met with selling given management's expectations.Apple CEO Tim Cook addressed the possibility of declining iPhone sales on the company's last earnings call. Cook isn'texpectinga slowdown -- rather, he sees room for continued sales growth:
Even as the demand for smartphones slows, Apple can win sales by converting owners of smartphones powered by Alphabet's Android operating system. There are hundreds of millions of Android handset owners -- that is to say, hundreds of millions of potential iPhone buyers. Research firm IDC expects Alphabet's hardware partners to ship just over 1.16 billion handsets this year -- more than five times as many smartphones as Apple. Alphabet's mobile operating system remains dominant on a global basis with more than 80% market share. That likely won't change any time in the near future, but a modest shift in demand could have significant effects on the iPhone business.
IDC believes the market for smartphones will swell to 1.9 billion by 2019. The firm expects Android's mobile market share to remain constant, at around 81.1%, while Apple captures most of the remaining sales. But if Apple could grow its market share by just a few percentage points over the next four years, it would result in many more iPhones sold. If Apple's smartphone market share rose to 18% in 2019, it would increase annual iPhone sales by around 50% -- more than 11% unit growth each year.
At the same time, there are plenty of iPhone owners with older models that could choose to upgrade. New leasing and financing programs make earlier upgrades feasible for a large number of American buyers, and carriers in other markets are beginning to offer them.Longer-term, Apple could pull additional levers to ensure continued growth. A more recent note from Kuosuggests that Apple is working on a new 4-inch iPhone, a model that could make its debut as soon as next year. It could beoffered at a lower price point and appeal to those who prefer the smaller form factor.
Given the difficult comparison, Apple's January earnings report could be its most significant in years.
The article This Analyst Thinks iPhone Sales Have Peaked originally appeared on Fool.com.
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