Apple's quarterly revenue and profit declines, reported last week, resulted largely from a big drop in iPhone sales that resulted from shifting sands in the smartphone industry.

Apple reported that its fiscal second quarter sales declined by 5% year-over-year. Meanwhile, the company's profit tumbled by 10%.

The biggest culprit was a 17% drop in iPhone sales. Market research firm IDC reported that global smartphone sales declined nearly 7% worldwide in the first quarter.

Apple's better-than-expected forecast for the fiscal third quarter — sales of between $52.5 and $54.5 billion — quickly calmed investors. But Apple must be wary of broader trends in the smartphone market, including declining sales and increased competitive threats as vendors prepare to release 5G and foldable handsets.

IDC estimates that total global smartphone shipments slipped to 310.8 million in the first quarter, the sixth straight quarter of decline. IDC said the first quarter performance is a clear sign that 2019 will be another down year for global smartphone shipments.

"There's a distinct slowdown in premium-tier smartphones as more mid-tier phones get better," Kevin Krewell, a principal analyst at Tirias Research, told EE Times. "I think there's also a slowdown in premium sales as consumers wait to see what 5G brings."

Krewell noted that Apple has also had to cut prices to make inroads in emerging markets such as India. Apple CEO Tim Cook told analysts on a conference call following the quarterly report last week that this strategy was bearing fruit. Cook said the decline in iPhone sales in the early part of the quarter as well as late last year "appears to be a trough."

Cook credited the price cuts as well as trade-in and financing programs that Apple implemented in its retail stores for the improvement in iPhone sales later in the quarter. Notably, Cook also credited improved consumer confidence brought about by what he saw at the time as improved trade dialog between the U.S. and China.

However, U.S. President Donald Trump announced over the weekend that the 10% levies on about $200 billion worth of China-made imports would rise to 25% this week and that he was considering imposing another 25% tariff on about $325 billion worth of Chinese goods. China is reportedly considering pulling out of a new round of trade talks that was to begin this week in Washington.

"Looking back at the past five months, November and December were the most challenging, so this is an encouraging trend," Cook said. "We like the direction we're headed with iPhone and our goal now is to pick up 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, eating away at Apple's market share. The market research firm estimated that Apple's share of the smartphone market fell to 11.7% in the calendar first quarter, down from 15.7% a year earlier.

Meanwhile, Huawei grew its smartphone shipments by more than 50% in the first quarter. The Chinese vendor's first quarter market share rose to 19% from 11.8% in the first quarter of 2018.

"It is becoming increasingly clear that Huawei is laser focused on growing its stature in the world of mobile devices, with smartphones being its lead horse," said Ryan Reith, a vice president with IDC's smartphone sales tracking program, in a press statement.

IDC noted that Huawei is now "within striking distance" of market leader Samsung, which saw its first quarter market share slip to 23.1% from from 23.5% a year earlier.

"This new ranking of Samsung, Huawei, and Apple is very likely what we'll see when 2019 is all said and done," Reith said.

It should be pointed out that the market share estimates of IHS Markit differ slightly from those of IDC. IHS estimates that Samsung had 22% market share in the first quarter, compared to 18% for Huawei and 14% for Apple.

While the IHS estimates are a little more favorable to Apple, any way you slice it the trend line is clear. Huawei is charging hard, at the expense of Samsung and, especially, Apple. As competition intensifies over a shrinking smartphone pie, Apple's market share could get worse before it gets better.

By: DocMemory
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