Apple has released excellent results, highlighting that – contrary to my previous view – iOS has been the main beneficiary of Samsung’s recent woes.
Apple’s FQ1 17A revenues/Adj-EPS were $78.4 billion/$3.36, compared to consensus at $77.3 billion/$3.22. iPhone was the main driver of the upside with 78.3 million units shipped at an ASP of $695, beating expectations of 76.3 million units at an ASP of $688. In addition to the share gain, prices went up as the larger screen version of the iPhone saw its biggest contribution to the mix ever.
I think that has been primarily driven by Apple taking a good share of users that purchased the Note 7 and were left high and dry by the recall. Users appear to have taken this opportunity to move from Android to iOS, a move which I think is pretty much a one-way street.
I find this surprising, as the iPhone 6 is now in its third generation – meaning that a large screen iOS device has been an option for users for two and a half years. This means that most high-end Android users have already purchased a new Android device despite a large screen iOS option being available.
This is what originally led me to believe that iOS would not benefit from Samsung’s Note 7 disaster – but this logic appears not have been correct. Instead it appears that the negative stigma surrounding the recall has been enough to encourage users to switch away from Android despite the fact that many apps will need to be repurchased.
I have estimated that around 2.5 million users (see here) were affected by the Note 7 incident, of which I think around 2 million bought an iOS device, while the remainder bought a Google Pixel device. This explains the strong performance of iPhone, the better mix towards the larger screen device (Note 7 is a large screen) and the geographic performance of Apple during calendar Q4 16.
It also explains Apple’s slightly cautious guidance for the coming quarter, as this gain is likely to have been a one-off benefit. FQ2 17E revenues/gross margin are expected to be from $51.5 billion to $53.5 billion/38-39% compared to consensus at $53.8 billion/38.7%.
Still, this is bad news for Samsung, as the crowd that bought the Galaxy Note 7 appear to have switched to iOS from whence they are unlikely to return.
Ironically, although Google has failed to win those users over to Pixel, it will still benefit, as RFM research indicates that iOS users generate far more advertising revenues for Google than Android users in the same demographic groups.
However, while these were good results for Apple, they do not herald the return to growth that the shares badly need if they are to see any real upward momentum. I still think that the shares represent great value for income based investors but those looking for capital growth will remain better off with Microsoft, Baidu and Tencent.
This article first appeared on RadioFreeMobile