Monday, September 23, 2013

The Value of Expert Commentary (including mine...)

One of the investment blogs I follow is called Seeking Alpha (Alpha is a fancy smantzy way of saying you are looking for better investment performance on a risk adjusted basis).  For the past week, most of the commentary has been how badly Apple is performing after Steve Jobs.

This morning the lead stories on the Apple Seeking Alpha thread included the following:

  • Weekend sales of the iPhone were probably close to the bottom of the 5M-6M range he expected, says Piper's Gene Munster. About 95% of those waiting in line were there for the 5S, says Munster, with about 90% upgrading from an older version (83% were upgrading when the 5 was launched, 73% for the 4).
  • At least one analyst had expected weekend sales of 7.75M, according to Bloomberg.
  • BMO's Keith Bachman hit the malls to find longer lines than last year's iPhone 5 launch, but writes this off as having to do with no pre-orders for the 5S. 5C sales look like a disappointment even to his already-muted expectations for that unit. The gold 5S is a hit, but little supply exists, with one visited store running out in the first 30 minutes.
  • The iPhone 5 sold 6M units over its first 10 days last year - a number Bachman doesn't think Apple will be able to match with this year's launch thanks to the lack of enthusiasm for the 5C and fewer selling days. He sees downside risk to his September quarter estimate of 31M units sold.
So what actually happened?   Apple released numbers this morning that showed that the company sold 9 million phones over the weekend (no differentiation between the 5S and the 5C).   That number was far in excess of what anyone projected.   At the same time the company said that 200 million iOS devices had been upgraded to iOS 7.  By any measure both results are huge - consumers did seem to like the new phones AND the adoption curve for the new operating system seems to be very robust.   That is all good news.

But wait.  As I have thought about it there could be some factors that have not been considered.   First, the comparison of sales to sales (last night I spent some time looking at sales figures of phones on opening weekend for three models - the 4S, the 5, and the new 5C/S) what it showed was that over the weekend wait times for the S models (especially the Gold one - which is the most novel on the outside) increased.   At the same time wait times for the C actually decreased over the weekend.   That could be related to lack of amazement over the 5C or it could be that Apple did a much better job this time of figuring out supply chain.   There is a second factor which most analysts have not seemed to consider - that being that this time they offered the new phones in more markets.   That alone could have contributed to the increased volume.  At this point, all we have is raw sales numbers - which make the Seeking Alpha Apple Naysayers look like fools.

Here are four preliminary conclusions from someone who is an Apple fan but genuinely interested in figuring out what all this means.   

First, despite what the natterers said, the new phone has a cool factor that will sell pretty well - both for the 5C and the 5S.  The finish and the internals of my new 5S make it a real upgrade.  The C colors, from discussions with people in the stores, seemed to be of interest to some customers.  The S has a couple of more important features - but the C still has very nice technologies to offer a more budget minded consumer.   The analysts thought the C was not cheap enough - but Apple figured out price and value are related.  Was the Gold phone shortage planned?  I suspect Apple may have assumed that people who really wanted to make a statement on their new phone would rush to the new color (although the finishes for both other phones are different) and that could be a big weekend story.    

Second, the adoption cycle of the new iOS may be as big a story - if not bigger.   Over the weekend I spoke to a lot of people who really like the new operating system additions - I suspect that the addition of parts like the freeing up of iPhoto and the three productivity Apps will make the ecosystem even more valuable.   Phones are a lot more than a device to call and text.   Last night, as we were out at dinner I saw again how useful the camera is to people.   I suspect that the adoption numbers will meet or exceed iOS 6 - which means that a vast majority of Apple phone and tablet users will be using the new iOS very soon.  

Third, it is not clear at this point whether the S or the C sold more units.   Most analysts argued that the C would be a volume leader, I suspect the sales between the two models was more balanced.   That may have been exactly the plan that the company established.   They did not want to compete with the cheapest but they wanted to offer a "value" alternative for price conscious customers.  There have been some early flash estimates that worldwide the mix was 3.7:1 S:C sales - with a slightly lower ratio in the US (3.4:1) but I would wait a bit to see if these numbers hold.   Fortune a graph which may be right from a firm named Localytics.  That means they sold almost 2 million more phones than the last launch with essentially the same margins as the 5 - plus they then sold another 2 million phones with a slightly lower margin.   Somehow, if the Localytics numbers are correct - that does not seem like a bad deal.

Finally, the increased number of opening day markets  mean two things, not one.   Compared to previous opening weekends there were more potential customers so the Apple to Apple comparison (pun intended) may not be exact.   But those increased markets could also offer the company new opportunities which were not there before - in other words the company is not selling the same phone to the same buyers.

As I have said before, I believe the cellphone market is getting into a mature phase.   If that is true, maintaining a loyal customer base that will stand in line for a new product is not only necessary, it is essential and Apple demonstrated that it can still make that happen.

No comments: