As Many Expected, Apple Inc. (NASDAQ: AAPL) unveiled the latest iPhone on its September 12 event. Since the first iPhone was introduced by Steve Jobs in 2007, the smartphone has generated a significant portion of Apple's revenue and revenue. Today it is still far and far tech giant's largest division.
In Apple's latest earnings report, the company sold 41.3 million iPhones in the third quarter, generating $ 29.91 billion of total revenue of $ 53.27 billion. Although volumes in the unit increased by only 1 per cent year-over-year, revenue in the division increased by 20 per cent, thanks to the rise in average selling prices (ASP), according to management.
In addition to selling the physical product itself, iPhone provided Apple with a gateway to reach hundreds of millions of users and sell new products and services through a distribution channel we carry around in our pockets.
The market is undoubtedly more competitive today, as well as capitalized tech giants vie for the massive business of unit sales (not to mention billions in accessories), coupled with toll-booth-like flows of recurring revenues that app large operators can generate .
Smartphone Market Fight
There are not many products that have a totally addressable market like smartphones. Market research company Newzoo recently released a report with some facts highlighting this:
- There are currently around three billion smartphone users worldwide. Newzoo estimates that the figure will reach 3.8 billion by 2021
- China, India and the Asia Pacific region are the largest markets in 2018 with 783 million, 375 million and 441 million smartphone users, respectively. An example of the importance of China's smartphone market is that Apple has built new versions of its phones with dual SIM technology with physical traces because the eSIM technology in the other versions is not generally compatible with China's mobile network.
- In 2021, the number of smartphone users in China, India and the Asia Pacific region is expected to reach 918 million, 601 million and 580 million respectively.
Not only is it expected that smartphone penetration will continue to grow, Newzoo also estimates global app spending will grow with 20.7 percent annual growth in 2021. In 2018, global revenues are expected to total a total of $ 92.1 billion, according to the report, and in In 2021, they are expected to hit $ 139.6 billion, with game apps responsible for $ 33.3 billion of the total.
Apple's service category, which includes sales from apps, music, movies, and other products across the company's devices, has grown to be the second largest division behind the iPhone. Last year, service revenues increased 31 percent year to $ 9.55 billion, according to Apple reports.
Apple built a lot of its business on the smartphone, while other tech giants tried to come in later in the game.
Amazon.com, Inc. (NASDAQ: AMZN) short-term firewall resulted in the company taking a $ 170 million charge related to the costs associated with the smartphone, reported the company in 2014. Not long after that, Amazon rolled out its virtual assistant Alexa, which offers many of the widely used features on smartphones.
Alfabet Inc. (NASDAQ: GOOG) (NASDAQ: GOOGL) Google developed Android mobile operating system, open source, and the most widely used mobile operating system in the world with 84.8 percent of market share in 2018 , according to industry research firm IDC.
And after years of collaboration with other manufacturers, Google has released two versions of its own smartphone, Pixel. The next version, Pixel 3, is expected to launch at the company's upcoming event October 9th.
Overseas in China, Xiaomi and Huawei are two of the major manufacturers. Both companies have grown over the years. Huawei had a market share of 15.8 percent based on smartphone transmission volumes in the second quarter of 2018, and put it on the back Samsung Electronics Co. Ltd. (OCTMKTS: SSNLF) 20.9 percent market share, according to IDC. Meanwhile, Apple was ranked third with 12.1 percent market share, and Xiaomi finished fourth with 9.3 percent.
What's next for smartphones? Since they are already jam-packed with key features, many businesses have focused on making incremental improvements, such as larger screens, better cameras, faster chips and so on. This has enabled them to achieve higher ASPs and increase revenue at a faster rate than sales of devices that customers upgrade.
Technology analysts have already begun to consider what can replace the smartphone down the road. After the latest Apple Watch was unveiled on Wednesday, a small number of analysts wondered that the sale of the laptop could eventually surpass the iPhone at some point in the future, even though it seems far beyond the company's current sales figures.
Technical companies also seem to believe that there is potential in technology-activated glasses. Apple has allegedly worked with a couple for a while that could be released in 2020. Google Glass is being used by a number of major manufacturers, although it fought with public acceptance when it was launched and not widely used as consumer product.
If the story is some lesson, the smartphone is probably eventually unseated by new technology. But for now, the market is expected to continue to grow.
It is a good idea to check in on your portfolio and see how certain companies perform regularly. This can help you identify when industrial displacements arise and business backgrounds begin to worsen. TD Ameritrades Tools and Platforms make it easy to carry out your research.
* According to