A friend of mine quoted this to me, and I will never forget it: "Statistics lie, and liars use statistics."
Over the past week, Verizon (VZ) and AT&T (T) released their earnings, which Apple (AAPL) investors dissected for clues on yesterday's earnings release. Unfortunately, though, many investors have been incorrectly analyzing these reports, leading to inaccurate perceptions of how Apple's iPhone sales are really doing.
I've read article after article spewing out Apple's ominous future downturn. Articles stating that iPhone sales for AT&T have dropped by 44% during the quarter. These figures are highly misleading, and here's why: We're comparing apples to oranges.
Instead of making a meaningful comparison, reporters are comparing a normal quarter (Q1) to a double holiday quarter (Q4), which had Black Friday and Christmas. Of course iPhone unit sales will drop from this quarter compared to the previous quarter because of seasonality.
In order to paint an accurate picture of how iPhone sales are really doing, we need to analyze and compare AT&T's iPhone unit sales from 2012's Q1 to 2011's Q1. By doing so, we'll be comparing apples with apples.
This information is taken from the SEC's database:
- 2012/2011 Q1/Q1 iPhone sales: 19.44% increase
- 2011/2010 Q4/Q4 iPhone sales: 85.36% increase
- 2011/2010 Y/Y iPhone sales: 15.13% increase
What can we tell from these figures? First, let's analyze why the 2011/2011 Q4/Q4 sales increase was so substantial. The iPhone 4s was released right at the beginning of this quarter, being met by pent up demand from consumers. Consequently, we've seen a tremendous growth in the iPhone sales year-over-year and quarter-over-quarter.
Comparing 2012 to 2011's first quarter, we see an impressive increase of 19.44% in iPhone sales, which shows continued demand. The iPhone 5's release later this year will be paramount in Apple and its stock long-term value. Not only will it drive sales tremendously for Apple, but it will put out this raging rumor of AT&T and Verizon cutting subsidies to the iPhone.
There have been rumors about AT&T and Verizon cutting subsidies to the iPhone, in attempts to cut their costs; however, this likely won't be the case at all. I went in depth into the strategic disadvantages of this in my previous article Apple Destroyed Earnings. What's Next? and will expand on it further here.
If AT&T or Verizon were to cut the iPhone subsidies, it's true that they would cut initial expenses; however, they will suffer massive losses in data-plan subscriptions and consumer retention. The sole reason why AT&T and Verizon are subsidizing the iPhone so heavily is because it attracts and keeps customers in a way unlike how the other smartphones can.
In AT&T's 2012 Q1 release, they stated that 21% of the iPhone subscriptions came from new subscribers; they also stated that the iPhone has the lowest churn rate, meaning it has the highest customer retention rate. Essentially, people who use iPhones stay with the company; those who don't use iPhones are more likely to leave the company.
We live in a business environment in which customer retention is key to a company's longevity. We've moved from the strategy of maximizing sells to maximizing customer retention, which will drive long-term profits. The iPhone is paramount to the success of AT&T and Verizon. As of now, there are no replacements for the iPhone that even come close to what Apple brings to the table. With the iPhone 5 refresh coming this year, current mobile competitors will have to scramble, yet again, to keep up with Apple's innovation and value-driven success.
Disclosure: I am long AAPL.