iPhone Market Share: The Rest of the Story

by: Stefan Sidahmed

How did the most recent quarter of Apple (NASDAQ:AAPL) iPhone sales compare to the competition? It depends. A statistician would say, “How do you want it to look?”

Philip Elmer-DeWitt recently wrote an article called “The iPhone grabs/loses market share.” In it, he discusses two other articles by different authors, using similar data, and coming up with opposite conclusions about the health of iPhone sales in the global smart phone market.

In one article, James Rogers for TheStreet.com reported that Q4 2009 iPhone sales comprised 16.4% of the global smart phone market, up from 10.8% in Q4 2008, a 52% increase while the smart phone market increased 28% over the same period.

In the other article, Niraj Sheth for the WSJ Blogs looked at sequential quarters and saw iPhone market share decrease from 18.1% to 16.6% from Q3 to Q4 2009, an 8.3% decrease while the global smart phone sales increased 30% over the same period.

Both of the above articles were based on opinions from professional analysts and are technically correct, but they provide a narrow view of the situation and individually or together, do not provide enough information to draw helpful conclusions. More analysis is needed to resolve the above discrepancy.

To give some perspective on where smart phone sales have been, below is a graph of the most recent 10 quarters (data sources provided at the end of this article).

Observations on the above graph:

  • Total global smart phone sales have been steadily increasing with the spike in Q4 2009 caused, not by Apple or RIM (RIMM), but rather by Nokia (NYSE:NOK) and “other”. Sheth also points out this fact in his article.
  • Nokia and “other” have been meandering along and not doing much, although Nokia has established a trend of growing sales over the last 3 quarters.
  • RIM and Apple have been steadily growing and are the main contributors the overall global smart phone market growth.

Below is a graph of smart phone market share, by quarter. I would not draw any broad based conclusions from any particular single data point in this graph. It is noisy and largely depends on the timing of product releases.

Niraj Sheth started his WSJ blog with

In the last quarter, Apple Inc.’s iPhone did something it’s rarely done before: lose market share.

From the above graph, iPhone has lost market share 5 times in 10 quarters, so this is not something to get excited about.

To be fair, Mr. Sheth’s blog was centered around ABI Research analyst Michael Morgan’s conclusions which compare the iPhone’s recent performance to the demise of the Motorola Razr. Mr. Sheth characterized the Razr comment as “… a little rich” Mr. Sheth also points out that we should expect some fluctuation in iPhone market share, which I completely agree with.

Overall, I thought it was a balanced report, but as already stated, looking at a single point in sequential quarterly data doesn’t tell the whole story.

How does same quarter market share data compare (e.g. Q4 2009 vs. Q4 2008)? The below table is read as such: The “2009 Q4” column is the percent change in market share from Q4 2008 to Q4 2009, and so on. I have highlighted in green and red, the best and worst performers each quarter.

Observation from the above table:

  • Nokia successfully pulled out of a nosedive.
  • RIM’s growth rate is slowing and their apparent good performance in Q3 2009 is more due to the iPhone eating their lunch in Q3 2008 (see Q3 2008 in the above graph).
  • Apple exploded out the gate, which is easy when you are starting with zero market share. Their apparent poor performance in Q3 2008-2009 is due to their market share spike in Q3 2008 (iPhone 3G release). Along the same lines, their apparent stellar Q2 2008 to 2009 performance is due to poor performance in Q2 2008 (everyone waiting for the 3G iPhone). Overall, iPhone market share growth has been tops.

So, is quarterly year-over-year comparison useful? Yes, as a whole data set. Looking at any one column in the above table by itself can lead to erroneous conclusions.

The most recent year on year quarterly growth of 52% (Q4 2008 to Q4 2009) as reported by TheStreet.com looks good, but what would the headline have been in Q3 2009 with only 4% year-on-year growth? “Apple Barely Holds On – Is This the Beginning of the End for iPhone?”

Additionally, in the sequential data from Q2 2009 to Q3 2009, iPhone market share jumped from 13.6% to 18.0, a 32% increase – ripe for a glowing headline to rebut the 4% year-on-year disaster! Q3 2009 quarterly data gives completely opposite results as Q4 2009.

Using trailing twelve-month (NYSE:TTM) data filters out some of the quarterly noise, where for example:

  • Nokia’s Q4 2009 TTM market share = (all Nokia smart phone sales in 2009)/(total global 2009 smart phone sales), or
  • Nokia’s Q3 2009 TTM market share = (Nokia smart phone sales from Q4 2008 plus Q1, Q2 and Q3 of 2009)/(Global smart phone sales in the same period).

This process smoothes the data and eliminates the effects of seasonality as can be seen in the below graph (compare it to the quarterly graph above).

It is now easier to see Nokia pulling out of their nosedive and Apple and RIM are both on a steady parallel climb.

The below table shows the TTM sequential quarterly market share growth rates. Again I have highlighted in green and red, the best and worst performers. Even though Apple and RIM are moving in parallel in the above graph, Apple’s growth is faster simply due to the fact that Apple is at a lower market share.

One more way to look at TTM data is to compare year over year data such as all of 2009 to all of 2008 (Q4 2009 TTM vs. Q4 2008 TTM). We can also look at Q3 2009 TTM vs. Q3 2008 TTM, etc. Since the iPhone has only been out since 2007, this exercise will only produce the 3 data points in the below table.

Overall, when looking at a complete set of data, Apple has been growing its market share significantly faster than the competition and there is no reason to believe, by looking in the rearview mirror, that this trend will not continue.

I am skeptical when broad conclusions are drawn from a limited data set. None of the smart phone players fell off a cliff in Q4 2009. They all had increased sequential sales, but Nokia and the “others” gained market share by increasing the global smart phone market with new product releases, not by stealing sales from Apple and RIM.

The global smart phone market is growing fast with Nokia, RIM, Motorola (MOT), HTC, Samsung, LG and others continuously releasing new products. Don’t expect Apple’s iPhone to be the number one growth model every quarter and don’t be surprised if they lose market share from time to time on a quarterly basis.

A few months ago, Mike Abramsky of RBC Capital markets predicted annual global smart phone sales for 2009, 2010, 2011 and 2012 of 164.9M, 250.4M, 376.5M and 503.9M respectively with iPhone market share for 2009 at 13.8% and climbing to 16.3% by 2012.

These numbers are up from his November 2008 report where he estimated global smart phone sales for 2009, 2010 and 2011 of 153.5M, 208.4M, and 294.0M respectively.

Based on the data I collected, actual 2009 iPhone market share was at 14.4% on 174M global smart phone sales, slightly beating his more recent estimates.

Just as it is with the computer market, Apple’s iPhone with have its niche in the smart phone market. Pure play smart phone makers such as Apple and RIM should do well as their sales expand with the rapidly growing smart phone market. To maintain sales, legacy manufactures such as Nokia, Samsung and Motorola need to rapidly switch from dumb phones to smart phones.

iPhone hardware refresh nominally occurs in June. Expect iPhone to lose market share in Q1 (just like the last two years), and depending on the hardware refresh date, Q2 may or may not be a down quarter. For the last two years, Q3 has been an up quarter for iPhone market share. I will be concerned if the iPhone does not break out in Q3 2010.

The data for this article was sourced from the below.

  • Q4 and end of year 2008 and 2009 (Strategy Analytics) (here)
  • Q3 2007, 2008 and 2009 (Canalys) (here)
  • Q2 2008, 2009 (Canalys) (here)
  • Q4 2007 (Canalys) (here)

Disclosure: Author is long AAPL and holds no positions in RIMM, NOK, MOT, OTC:SSNLF, OTC:LGERF

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