Author: Ni Yuqing
Editor丨Lin Hong, trainee editor, Zhang Mingxin
Figure source丨Figure worm
After Apple announced its earnings report of a double decline in profits, it quickly launched a price reduction strategy in recent days.
Since February 5, Apple's latest high-end flagship iPhone 14 Pro has reduced the price of more than $100 in China, and offline dealers have dropped the mobile phone by 700 yuan. On February 6, the 21st Century Business Herald reporter checked the official website of Jingdong and found that from February 5 to 15, the price of the iPhone 14 Pro series in Apple's own store was reduced by 800 yuan, and the starting price was reduced to 7099 yuan. However, at present, Apple's official website still maintains the original price.
For Apple, it is rare to make a large price cut in the off-season of the first quarter, the timing is unexpected, and the promotion is more than before. Previously, within half a year of the launch of the new model, Apple often controlled the price reduction and only carried out preferential activities on "Double Eleven" or holidays. However, since the release of the iPhone 14 last year, Apple has gradually broken the convention, cooperated with e-commerce platforms and other channels, and frequently discounted and reduced prices.
Guo Tianxiang, a senior analyst at IDC China, told the 21st Century Business Herald reporter, "The most direct reason (of price reduction) is the year-on-year decline in the iPhone performance shown in Apple's latest earnings report." Although there was a decline in performance due to insufficient production capacity and shortage in the fourth quarter of last year, the essential reason is that the overall upgrade of the iPhone 14 is small, and the attractiveness to consumers has declined. Coupled with the longer replacement cycle of consumers, Apple can only stimulate sales by cutting prices. This kind of price reduction measures, mainly through the concession of channel profits, are generally more flexible, and the implementation time will be determined according to the market response. ”
Behind the price cuts, there is a storm
For a long time, in order to maintain brand tonality, mobile phone manufacturers have strictly controlled channel prices, especially Apple. However, in 2022, all mobile phone manufacturers will be affected by the sluggish sales season, high inventory, and weak consumption. According to Canalys, global smartphone shipments fell 18% to 297 million units in the fourth quarter of 2022. Due to weak demand, the total shipments of various manufacturers in 2022 were less than 1.2 billion units, resulting in a 12% decline in global annual shipments.
Even Apple, in the promotion node has shown a higher than previous decline, Android mobile phones in a longer cycle, with greater preferential measures to boost consumer demand. Although Apple began to increase its promotional efforts last year, in horizontal comparison, Apple's strategy is still cautious and slightly adjusted.
In the trough environment, superimposed on supply chain problems, Apple will inevitably experience a decline in performance. According to the financial report, Apple's total net sales in the first fiscal quarter were $117.154 billion, down 5% year-on-year, and the net sales of iPhone business were $65.775 billion, down 8% year-on-year. Apple CEO Tim Cook said that the decline in revenue was mainly due to the limitation of mobile phone supply.
Last year, the iPhone 14 Pro series was out of stock for a period of time, and the Pro series was more favored by consumers. Compared with the upgraded smaller iPhone 14, the iPhone 14 Pro series has the iconic "smart island" design, whether from the perspective of software and hardware design innovation or user early adopters, it has become the first choice for many consumers. As supply recovers, Apple is also taking advantage of the heat to target the attractiveness of the iPhone 14 Pro to drive mobile phone revenue.
On the other hand, for ordinary manufacturers, promotion is naturally to clear inventory, increase revenue, or increase market share. In fact, from the financial report, Apple is not short of money, with operating cash flow of more than $100 billion in fiscal 2022; In the fourth quarter of 2022, Apple also reached a new high in market share, ranking first.
At this time, the launch of the price reduction strategy, on the one hand, will help to consolidate the position, further increase market share, and continue to compete with Samsung for the first place. On the other hand, some analysts told the 21st Century Business Herald reporter that Apple's move is a tactical adjustment to further expand the user base, and in the current mobile phone stock market, the competition in the scale of users is more intense. At the same time, in the increasingly difficult situation of hardware profits, software has become a new growth engine for mobile phone manufacturers, and the expansion of the user base will directly boost software revenue.
Taking Apple as an example, software services have become Apple's second largest revenue pillar outside of mobile phones, and continue to record new revenue highs, while software profit margins are much higher than hardware.
Stock market winners
However, Guo Tianxiang also pointed out to reporters, "It should be difficult to see a rapid increase in sales in the short term." First, because after the Spring Festival, it will generally enter a weakest stage of annual sales, secondly, consumer market demand has not rebounded significantly, and finally the Pro series is generally targeted at users with higher price segments and more adequate budgets, who should have bought them before, and the price after the promotion is still higher for users with tight budgets. ”
This still reflects the cutthroat competition in the mobile phone market. Looking back, from the iPhone 13, "increase the amount without increasing the price" has appeared in Apple's label in the past two years, although the iPhone 14 standard version update is not large, but Apple a little price reduction, will be in the high-end market cost-effective competition advantage, for the Android brand impact.
Even if it drops 700 yuan and 800 yuan this time, Apple's mobile phone still occupies the profit highland and still dominates the highest-end market territory. According to IDC data, from the fourth quarter of 2022, Apple accounted for 72% of the high-end market above $600.
At the same time, it is worth noting that this time Cook also mentioned that Apple has more than 2 billion active devices, which shows that Apple is further expanding the user base on the one hand, and on the other hand, it emphasizes the number of active numbers and service quality in the case of weak growth of mobile phones.
In 2022, Counterpoint Research once disclosed a data, based on "active installed base" statistics, Apple's share of the US smartphone market in the second quarter of 2022 has exceeded the rest of the Android devices, accounting for 50% of the share, which is also the highest share of the iPhone since its launch in 2007.
The so-called active installed capacity refers to the smartphones that users are using, and this data includes millions of users who have entered the Apple ecosystem through the second-hand market, as well as users who use older iPhones, in addition to new phone sales. The analysis pointed out that in the past four years, the direction of traffic change has been from Android to iOS.
This also means that in the environment where high growth is no longer there, a new round of large-scale competition and high-quality competition in the mobile phone industry is continuing, and mobile phone manufacturers are still operating cautiously this year and focusing on profitability.
Canalys research analyst Le Xuan Chiew said that looking ahead to 2023, Apple and Samsung based on their dominance in the high-end market, despite the pressure of weak overall demand, iPhone Pro models will help Apple expand its revenue share, Samsung also achieved sustained profitability by strengthening its high-end product portfolio, and using the Fold product line to create a high-end segment.
In addition, Chinese manufacturers remain vulnerable to international market headwinds and cutthroat competition in the domestic market, and in addition to poor demand, channel inventory, margin pressures and operational efficiency also pose challenges to their expansion strategies.
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Editor of this issue Jiang Peipei Intern Xiao Nan