(Bloomberg) -- The iPhone āsuper cycleā -- a wave of upgrades and new customers that was supposed to wash over Apple Inc. this year with the introduction of its model X -- was pronounced dead on arrival.
In Apple's first earnings report since the launch of the pricey flagship smartphone, the company reported lower-than-expected handset sales from the holiday period. Chief Financial Officer Luca Maestri also forecast a decline in the average selling price of iPhones in the current quarter, suggesting the most-expensive models aren't as popular.
The results are part of a broader malaise in the global smartphone industry. Shipments in the fourth quarter dropped 9 percent, year over year, the biggest decline in history, according to Strategy Analytics.
āThe super cycle is dead,ā Steven Milunovich, an analyst at UBS, wrote in a note to investors on Friday.
Apple shares fell as much as 4.1 percent Friday to $160.88, the biggest intraday decline in more than six months. The stock is down 4 percent so far this year.
āThe verdict is in: relative to expectations, the cycle is weak, and total iPhones sold are likely to be flat for the third straight year,ā Toni Sacconaghi, an analyst at Sanford C. Bernstein, wrote in a note to investors. He downgraded the shares to market-perform and cut his price target to $170 from $195.
Smartphone doldrums are hurting other companies, too. Verizon Communications Inc., the largest U.S. wireless carrier, has offered unlimited data plans to lure subscribers as a saturated and competitive market makes it more difficult to attract new customers.
Qualcomm Inc., the largest mobile chipmaker, has seen orders from big customers tail off and is diversifying into other types of processors. The company is also holding out for faster 5G wireless networks and new phone features it hopes will revive growth in the sector.
Apple is adjusting by focusing on its huge installed base of devices and how to make more money from that -- rather than selling a lot more phones each year, Milunovich added.
Indeed, Chief Executive Officer Tim Cook highlighted late Thursday that Apple has 1.3 billion devices in use now, an increase of 30 percent in two years. The company is trying to sell more services through these devices, along with more accessories and related gadgets. Apple services revenue jumped 18 percent in the fourth quarter, while sales of other products, like the Watch and AirPods, jumped 36 percent.
Milunovich and other analysts quizzed Apple executives on the slowing phone upgrade cycle, during a conference call late Thursday.
āYou have an installed base that's 20 percent-plus higher, and a unit growth that's relatively flat, which would suggest that your upgrade rate is going down, or your replacement cycle is elongating. And I'm wondering whether you agree with that,ā asked Sacconaghi.
Cook advised against looking at 90 days of sales. āThe far bigger thing is to look over a longer period of time and customer satisfaction and engagement and number of active devices are all a part of that.ā
Over longer periods, the smartphone market still looks weak, though. Global smartphone shipments slipped 0.1 percent in 2017, with iPhone shipments up 0.2 percent, according to research firm IDC.
Still, many Apple fans were undeterred by the recent results.
Apple's ability to command a premium has ānever been more clear,ā Loup Ventures' Gene Munster said in a note. The company did āstumbleā with iPhones missing unit sales estimates, but he's bullish on the ātransition from their existing iPhone platform to an augmented reality-driven platform in the future.ā
--With assistance from Ian King Adam Satariano and Mark Gurman
To contact the reporter on this story: Alistair Barr in San Francisco at abarr18@bloomberg.net.
To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net, Andrew Pollack, Molly Schuetz
Ā©2018 Bloomberg L.P.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories ā On NDTV Profit.
