After I published "Why Apple's iPhone 6 Won't Reverse Apple's Market Share Decline", I received a number of comments from Apple (NASDAQ:AAPL) supporters that contained common themes or threads. Many of the threads were grounded in reality, such as Apple's indisputable profitability, but some I regard as popular myths. In this article, I attempt to debunk some of these myths.
Myth #1: Apple doesn't care about market share
This thread seemed to run through many of the comments. A example is the comment of user "Charlie the Greek":
How many times does it have to be pointed out to you and Mark, that Apple could not give a rat's a... about market share? Are you that dense?
For a company that supposedly doesn't care about market share, Apple talks about it a lot. Market share is a topic of discussion at virtually every quarterly earnings conference call. Space doesn't allow me to include all the possible examples, but a few should suffice.
CFO Peter Oppenheimer at the fiscal 2013 Q3 call:
iPhone unit sales in the U.S. increased 51% compared to the year ago quarter and based on research recently published by comScore, iPhone once again achieved the number one spot in the U.S. smartphone market for the three months period ended in May with over 39% share (italics mine).
Peter O. at the fiscal 2014 Q1 call:
In fact, based on the latest data published by Kantar, iPhone accounts for 69% share of the smartphone market in Japan.
And based on the latest data published by IDC, combining business, government, and education institutions, iPhone has a 59% share of the U.S. commercial smartphone market (italics mine).
In case the reader wonders if things have changed since the retirement of Peter Oppenheimer, here's a Tim Cook quote from the latest fiscal 2014 Q2 call :
We gained smartphone share in many developed and emerging markets including the U.S., the UK, Japan, Canada, Germany, France, Vietnam and Greater China, just to mention a few. In fact, we established a new all-time record for total iPhone sales in the BRIC countries.
We continue to gain share in the personal computer market as well. We defied industry trends again by growing while the market contracted (italics mine).
Apple's concern with market share is apparent from these quotes, but that's not to say that market share is an end in itself at Apple, and I haven't advocated that it should be. As I said in the last article and the one before it on Mac market share, I see market share as an indicator of the competitive strength of Apple's products relative to the market. As such, it can play a role in predicting future growth.
Tim Cook's statement at the fiscal 2013 Q1 conference call is indicative of the balance that Apple tries to strike:
The most important thing to Apple is to make the best products in the world that enrich customers' lives. . . So what does that mean for market share. We've been able to do that and have had a great track record on iPod of doing different products at different price points, and getting a reasonable share for doing that. . . I wouldn't view these things as mutually exclusive as some might, but the high order bit is making a great product, that enriches customer's lives. And so that's what we are focused on.
Myth #2: Apple shouldn't and wouldn't "move downmarket" or "cheapen its brand"
This also was a common thread in many comments, as in this comment by user K1smet:
Why would Apple want to move "down market"? That's a stupid strategy given the vast majority of profits are at the HIGH end.
The problem with this statement is that it implies that Apple hasn't already moved down market with iPhone or its other products. It has. Currently, the iPhone 4s is available with a two-year contract for free. It's hard to get further down market than free, although I grant that they could potentially get even lower priced on an unlocked 4s.
The idea that Apple does or should have an aversion to moving down market is thoroughly demolished by the Mac computer line. Macs are available in a variety of price points and capabilities, from the Mac Mini to the new Mac Pro. Apple just introduced new lower cost iMacs. If Apple were averse to moving down market, it would only offer the current Mac Pro, and other previous generations of Mac Pro.
Concerns that Apple making its products more affordable will "cheapen its brand" imply that Apple products should be reserved for a privileged elite that can afford them. My interests as an Apple developer are in conflict with this attitude. I would like to see as many people as possible enjoying the benefits of Apple's superior operating systems, software, services, and hardware. The new lower cost iMacs are a perfect example of Apple making their products more affordable, more accessible, without "cheapening the brand".
Myth #3 IDC and Gartner have deliberately distorted their market share data by inclusion of cheap "white box" Android devices
I received a number of comments along these lines, such as this one from SA contributor Tri Duong:
. . .So No, the iPhone 6 won't reverse market share decline because the rest of the industry is pumping out cheap junk Android phones for the masses especially in 3rd world nations. (Edited for brevity).
And this comment by user apple believer:
Gartner and IDC research? Please they are being paid by some companies a few months ago there was a very insightful article at appleinsider that called these so called research bluff. (Edited for brevity.)
This thread has its origins in an article by Daniel Eran Dilger from last year. The article is short on facts buy long on innuendo, implying but never stating that IDC and Gartner have some how been obliged by an unnamed third party (presumably hostile to Apple) to deliberately distort their market share data to make Apple look bad. The tool of said distortion is the inclusion of "white box devices" (non-branded commodity Android phones, mostly made in China). Although the article reeks of conspiracy theory paranoia, the question of whether to include white box devices is a legitimate one.
I decided to revisit my market share calculations in a way that would guarantee exclusion of white box devices. Once again, I turned to IDC's and Gartner's market share data, and no, I don't regard Dilger's theories as credible. Everyone in the industry uses IDC or Gartner or both, and everyone has to pay for their data. I doubt that buys any special influence. Even Peter O. quoted IDC in the fiscal Q1 2014 conference call as I detailed above.
For this follow-up analysis, I compare Apple's market share with only the top five smartphone vendors, excluding the "all others" category. Complicating the analysis is the fact that the composition of the top five changed over the years from 2010 to 2013. For instance, in 2010 the top five consisted of Samsung, Apple, Nokia, Research in Motion, and HTC. By 2013, the top five consisted of Samsung, Apple, Huawei, LG, and Lenovo.
Since Apple and Samsung were always in the top two slots, I decided to lump together the bottom three of the top five for purposes of the following charts. In the first chart, I show annual sales of the top five from 2010 to 2013, showing overall growth of the top five vendor shipments, as well as the individual growth of Apple and Samsung. Data for the years 2010-2012 from IDC and 2013 from Gartner.
In the following chart, I plot percent of sales for Apple and Samsung (and the bottom three) compared to total sales of the top five. It's a synthetic market share percentage that's exclusive to the top five vendors and completely excludes any white box effect.
Because of limitations in the data, trends are only shown with yearly resolution, but the overall trend for Apple's Top Five market share is very similar to what I showed previously. Apple's iPhone market share declined between 2012 and 2013. Bottom line: exclusion of white box sales doesn't really change the trend in Apple's market share.
Many other issues were raised in the comments on the last article, including perhaps the most important, the relative importance of profitability compared to market share. But this is a subject for another article.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.