A few hours ago Apple posted the sales figures for the first Quarter of 2013 and once again, set new records. More iPhones, more iPads, a huge increase in sales, but overall a stagnation in profits and a drop in shares of 10%.

Apple Quarter Sales Analysis: Setting Records & Showing Weaknesses

Apple has done it again, shocking the world with their impressive sales figures. But the enormous numbers Apple reported are not the only reason CEO Tim Cook is correct in saying that this is a balance sheet that no business has achieved ever before.

Apple sold 47.8 million iPhones in the last quarter, which represents an increase of 29% compared to Q1 2012 and a ridiculously impressive 78% increase compared to last quarter. The iPad was announced a new sales record of 22.9 million tablets sold with the fruit logo, which in comparison with Q1 2012 is an increase of 48% and compared to the previous quarter, an increase of 63%.

The iPhone 5, iPad 4 and iPad mini all seem to be doing well– seem being the keyword– more on that later.

The iPod sales broke the previous year’s sales by 18%. Apple sold 12.67 million iPods, up 137% compared to last quarter. But it seems that the once revolutionary media player has already reached its zenith.

Similarly, Macs sold “only” 4.1 million times, representing a decrease of 22% compared to the same quarter last year. However, what is even more interesting, is the fact that in comparison to the previous quarter, Mac sales are down 18%. In the past four years nothing like this has ever happened to Apple.

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Never have the sales numbers from Christmas been lower than the previous quarter, at least not for Apple these past four years.

This unprecedented drop for Apple of course has much to do with generally stagnant PC sales, increased competition and a stagnation of traditional Mac users. But it’s also because the new Macs simply aren’t good enough.

Let’s look at accessories ($ 1.8 billion U.S. in sales) and look again briefly at the turnovers on iTunes, software and services, which have quite an impressive impact on the U.S. ($3.687 billion, to be exact). Although this corresponds to an increase of 22% compared to last year, it’s only a 5% increase compared to the previous quarter. The holiday season is traditionally the quarter in which Apple prepares for new records in downloads from the iTunes Store. This year it didn’t happen. Reasons and theories to follow!

Overall, Apple reporting a record turnover in the U.S. of $ 54.512 billion. A fabulous increase of 18% compared to Q1 2012 and a 52% jump from the previous quarter. Huzzah!

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Now I know Apple fans will jump to Apple’s defense and don’t get me wrong, these are sensational numbers that most companies can only dream of having, but I’m analyzing the long term effect of these numbers and what they indicate for Apple’s future. Apple’s profit has stagnated in comparison to Q1 2012.

In Q1 2012 Apple saw a gain of $ 13,060 billion, so the gain of “only” 40 million this year indicates a big drop in growth (and here again is the familiar problem of the iPhone addiction. For almost 2 years, the iPhone generated about 60% of sales. As the iPhone faces stiffer competition, it sells less and Apple’s profits fall)!

Now let’s analyze why the markets react nervously to Apple’s astounding sales figures. In the first Quarter of 2012, Apple made $ 3.54 per sales a dollar of earnings, so now they need a turnover of $ 4.16 which represents a decline of over 17%.

The dwindling margins can be attributed to several new factors. The iPad mini cannibalizes the profit of the “big” tablets from Apple, which traditionally yielded more profit. The 4 series of the iPhone is also very successful (lower margins than iPhone 5 through reduced prices) and also the new flagship of the iPhone series was more cost intensive than the predecessor.

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What exacerbates the situation is the fact that Apple seems to have lost control of its supplier chain. The foundries and fabs produce SoCs without end and come up with the orders quickly, so Apple can no longer shop as cheaply. Whether by Apple, Samsung, Sony and LG, the supply industry continues to produce its components.

A further complication is the negotiation king Tim Cook is no longer personally in charge of sales and his successor has been left to deal with a much more complicated market.

Canvasing New Customers & The China Challenge

I have already mentioned the minimal increase in turnovers in the software and iTunes area. Compared to at least 2-digit increases in the previous years, Apple was able to grow by only 5% in the Christmas quarter, and this should have the alarm bells ringing in Cupertino.

Traditionally, in the Christmas quarter the AppStore is stormed by customers, because ultimately they want the best software on their new gadgets. Apparently, however, this seems to have not just taken place in the last quarter, which allows only one conclusion: Apple is finding it increasingly difficult to find new users for its ecosystem!

Those who are already Apple users and are just switching from say an iPad 2 to the Mini or the 4, already have all the standard apps and only go to the store if they really have to.

Apple-China

Another challenge seems to be the Chinese market, although Cook repeatedly speaks of how he is excited about the development. Apple has had its share of problems and success in China, as in the U.S. or Europe. Even Japan, a market which, compared to China, represents five-tenths of the potential users, achieves almost 80% of revenue from Mainland China, Hong Kong and Taiwan!

Apple’s sales in Greater China (and this includes Mainland China, Hong Kong and Taiwan) increased 67% from last year, but increased only by 26% from last quarter. Even when you consider that the iPhone 5 got to China quite late, this limited growth in comparison to the growth in northern, middle and South America (47%), Europe (55%), Japan (88%) and the rest of APAC markets (89%), is no reason for celebration.

Outlook

Apple enjoyed yet another Quarter 1 sales triumph that will be noted in history, but the numbers themselves indicate something darker, leaving everyone brutally aware of the immense challenges that lie in wait for Apple.

Tim Cook needs to cast aside his reverence for Steve Jobs, step out of his shadow and present his own brilliant innovation to define the course of world markets for years to come.

The numbers show that not only is unlimited growth a fairy tale of capitalism, but that even Apple has to fight shrinking profit margins. A “beginner” iPhone at a lower price would only continue to carve away at Apple’s strength. A price war with the competition won’t get Apple anywhere.

Tim Cook rejected the larger, cheaper iPhone rumor largely because it would seem an act of desperation rather than innovation.

The world’s most valuable company has no reason to fear. Their cash reserves seem endless, but sooner or later Apple will have to go shopping. Especially if they want o emancipate themselves from Samsung and LG. At this point, Apple is nothing without the Koreans.

It’s undeniable that Apple’s sales are astounding. Apple has now sold 500 million iOS platforms, with 75 million alone sold in the last quarter. That’s about 9 devices per second!

(Translated from the German by Sascha Pallenberg)

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