Apple's quarterly decline in revenue and profit last week has largely resulted from a sharp drop in iPhone sales as a result of the sands shift in the smartphone industry.
Apple said its second-quarter sales fell 5% year-over-year. Meanwhile, the company's profit fell 10%.
The biggest culprit was a 17% drop in iPhone sales. Market research firm IDC reported that global smartphone sales fell nearly 7% worldwide in the first quarter.
Smartphone shipments expected to recover in 2019
Apple's better-than-expected forecast for the third fiscal quarter – sales between $ 52.5 and $ 54.5 billion – quickly soothed investors. But Apple needs to be wary of the broader trends in the smartphone market, including declining sales and increased threats to competition as vendors prepare to roll out 5G handsets.
IDC estimates total global shipments of smartphones dropped to 310.8 million in the first quarter, the sixth consecutive quarter of decline. IDC said the first-quarter performance is a clear sign that 2019 will be a further downward year for global shipments of smartphones.
"There is a significant slowdown in premium smartphones as the mid-level phones improve," Kevin Krewell, an analyst with Tirias Research, told the EE Times. "I think there's also a slowdown in premium sales as consumers wait to see what 5G brings."
Krewell noted that Apple also had to cut prices to make inroads into emerging markets like India. Apple CEO Tim Cook told teleconference analysts following last week's quarterly report that this strategy is bearing fruit. Cook said the decline in iPhone sales early in the quarter and late last year "seems to be a low point."
Cook credited the price cuts, as well as the swap and financing programs Apple has implemented in its retail stores to improve iPhone sales at the end of the quarter. Notably, Cook also credited the improved consumer confidence brought about by what he saw at the time as a better trade-off between the US and China.
However, US President Donald Trump announced over the weekend that China's 10% import duty rates would increase to 25% this week and that he was considering imposing another 25% tariff on Chinese goods in the amount of US $ 325 billion. . China is considering withdrawing from a new round of trade talks due to begin this week in Washington.
"Looking at the last five months, November and December were the most challenging, so this is an encouraging trend," Cook said. "We like the direction we're following with the iPhone and our goal now is to accelerate the pace."
According to IDC, the iPhone has struggled to win over consumers in most major markets, while competitors such as Huawei push the envelope, eroding Apple's market share. The market research firm estimates that Apple's share of the smartphone market fell to 11.7 percent in the first quarter of the calendar, up from 15.7 percent a year earlier.
Meanwhile, Huawei increased its shipments of smartphones by more than 50% in the first quarter. China's first-quarter market share rose to 19 percent from 11.8 percent in the first quarter of 2018.
"It's becoming increasingly clear that Huawei is focused on growing its stature in the mobile world, with smartphones being its leader," said Ryan Reith, vice president of IDC's smartphone sales tracking program.
IDC noted that Huawei is now "within walking distance" of Samsung, the market leader, which posted a 23.1% drop in market share in the first quarter, down from 23.5% a year earlier.
"This new ranking from Samsung, Huawei and Apple is very likely what we will see when 2019 is all said and done," said Reith.
It should be noted that IHS Markit's market share estimates differ slightly from those of IDC. IHS estimates that Samsung has a 22% market share in the first quarter compared to 18% for Huawei and 14% for Apple.
Although the IHS estimates are slightly more favorable to Apple, any way to split the trend line is clear. Huawei is charging hard, at the expense of Samsung and especially Apple. As competition intensifies with a reduction in the share of smartphones, Apple's market share may worsen before improving.