What Display Daily thinks: Apple’s going to need the iPhone 15 to resonate with consumers. Whether the product is sufficiently attractive enough to attract an upswing in iPhone revenues is up for debate. The Apple fan club, which seems to be most of the technology press, has waxed and waned when it comes to the iPhone 15 so that doesn’t help much. But, it is important for the display industry because I still believe there is a post-iPhone era that may be happening.
A post-iPhone era does not mean anything to Apple’s performance. It is immune to any market fluctuations, meaning that Apple lives in Apple’s world and no one else gets to play there. What it does mean is that there are opportunities for its competitors to build their audience, and maybe, at some point, start to slough off some of Apple’s customer base. That’s why foldables are so interesting, they represent a unique upgrade proposition. Whatever their issues, they can make a dent in Apple’s growth prospects. Will that hurt Apple’s revenue and profit dominance in the category? Very unlikely. The question is, will Apple be able to just sweep the competition away once it comes out with its own foldable? Does it really matter if they wait it out and jump in only when they are ready? Is the iPhone ever going to lose that luster? Those are very frustrating questions for Apple’s competition, and they hurt the bigger opportunity for display manufacturers.
Apple’s Q2’23 Financials
Apple announced its financial results for the third quarter last week, reporting mixed earnings as the company continues to face challenges in the smartphone market. The tech giant’s iPhone revenue for the quarter was $39.67 billion, showing a slight decline from $40.66 billion during the same period last year. This downward trend is consistent with the broader smartphone market, which has been grappling with slowed upgrade cycles and other economic headwinds.
| Q3’23 | Q3’22 | Nine months ended July 1, 2023 | Nine months ended June 25, 2022 | |
| Net sales | ||||
| Products | $60,584 | $63,355 | $230,901 | $245,241 |
| Services | $21,213 | $19,604 | $62,886 | $58,941 |
| Total net sales | $81,797 | $82,959 | $293,787 | $304,182 |
| Cost of sales | ||||
| Products | $39,136 | $41,485 | $146,696 | $155,084 |
| Services | $6,248 | $5,589 | $18,370 | $16,411 |
| Total cost of sales | $45,384 | $47,074 | $165,066 | $171,495 |
| Gross margin | $36,413 | $35,885 | $128,721 | $132,687 |
| Operating expenses | ||||
| Research and development | $7,442 | $6,797 | $22,608 | $19,490 |
| Selling, general and administrative | $5,973 | $6,012 | $18,781 | $18,654 |
| Total operating expenses | $13,415 | $12,809 | $41,389 | $38,144 |
| Operating income | $22,998 | $23,076 | $87,332 | $94,543 |
| Other income/(expense), net | ($265) | ($10) | ($594) | ($97) |
| Income before provision for income taxes | $22,733 | $23,066 | $86,738 | $94,446 |
| Provision for income taxes | $2,852 | $3,624 | $12,699 | $15,364 |
| Net income | $19,881 | $19,442 | $74,039 | $79,082 |
Despite the dip in iPhone revenue, Apple managed to mitigate the impact through the success of its services division. The company reported an increase in services revenue, reaching $21.2 billion for the quarter, up from $19.6 billion in the previous year, surpassing analysts’ expectations.
Apple CEO, Tim Cook, highlighted the company’s achievements in the services sector during the quarter, stating, “We are happy to report that we had an all-time revenue record in services during the June quarter, driven by over 1 billion paid subscriptions, and we saw continued strength in emerging markets, thanks to robust sales of iPhone.”
Apple’s growth in China also provided a boost to its overall performance. Sales in Greater China increased by 8% year-on-year, with the company managing to gain market share in the world’s largest smartphone market.
In an interview with CNBC, Cook revealed Apple’s ongoing efforts in the field of generative artificial intelligence (AI), stating, “We view AI and ML as fundamental core technologies. And they are virtually embedded in every product that we build.” This statement comes as competitors like Microsoft and Google continue to make headlines for their advancements in AI and machine learning technologies.
Apple Dominates Global Smartphone Profitability Amid Market Decline
Despite the global smartphone market suffering significant declines in revenue and operating profit, Apple has solidified its position as a dominant player, according to a report from Counterpoint’s Market Monitor Service. The report reveals that Apple’s share of global smartphone revenues reached a record second-quarter level of 45% in Q2’23, while its share of operating profits hit an astonishing 85%. This growth comes in the face of a 2% annual decline in iPhone revenue and a 3% YoY decrease in Apple’s shipments.
The global smartphone market revenues declined by 8% YoY and 15% QoQ to just under $90 billion in Q2’23, marking the lowest Q2 figure since the pandemic’s peak in 2020. Operating profit similarly fell below $13 billion, dropping 3% YoY and 27% QoQ. Apple has increased its average selling price (ASP), thanks to the growing contribution of the Pro series and the replacement of the Mini for the iPhone 13s with a Plus for the iPhone 14s. As a result, while Apple’s iPhone revenue declined by 2% annually, its revenue share grew reaching a second-quarter record of 45%.
The revenue decline in the overall market is linked to a 9% YoY shipment decline, with ASP growth at a mere 1% in the same period. Although the report portrays a challenging market environment, it also hints at a recovery for global smartphone revenues and operating profits starting in H2 2023. This comes with the expected continuation of the premiumization trend, driven by emerging markets and brands targeting both mid-tier and premium segments.
