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People aren’t rushing to upgrade their smartphones.
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Apple’s earnings tell the story of a global smartphone demand shock

Amrita Khalid
By Amrita Khalid

Tech reporter

From our Obsession

Big Tech

Looking at Big Tech as the next Big Oil.

Apple CEO Tim Cook neglected to mention how many units of the the latest iPhone—the new, low-budget SE—were sold during the company’s earnings call on April 30.

During the first three months of 2020, iPhone sales declined by 7% compared to the same period last year. This makes iPhones the hardest-hit category of Apple devices by far, over iPads, Macs, and wearables. While the Covid-19 pandemic didn’t create the global smartphone demand shock, it certainly didn’t help matters.

Of the top 10 smartphone makers in the world, all but one faced a significant drop in sales in the beginning of 2020, according to data from technology research firm Omdia. Samsung and LG reported their declines in smartphone sales in earnings calls this week, and both said they expect sales to continue to drop.

 

The drop in smartphone sales can only be partly explained by Covid-19. While Apple closed its retail stores around the world due to the pandemic (it only recently opened up stores in China and South Korea), online sales of other items have soared. And while the virus prompted the company to shut down its smartphone factories in China earlier this year, they have since reopened and production is back to normal.

It seems more likely that the dip comes down to consumer choice—and the overall economic uncertainty created by the pandemic. “While concerns about this situation have been alleviated, the smartphone brands also faced new challenges, including disrupted launch schedules for new phones. Even more troubling for smartphone makers is a major decline in global demand due to government lockdown mandate,” wrote Jusy Hong, smartphone research and analysis director at Omdia, in a memo.

Demand hasn’t gone down for everything, though—mostly the mobile devices that matter most when we’re actually, you know, mobile. NPD Group reported earlier this week that sales of high-price electronics from TVs to laptops to computer monitors have soared in the US, just as Covid-19 stay-at-home orders went into effect. Over 1.1 million flatscreen TVs were purchased during the week that ended on April 18, the highest volume outside of the holidays.

More realistically, this quarter’s demand shock is an extension of a long-term decline in global smartphone sales. They’ve been falling since the holiday quarter of 2017, when sales fell for the first time since 2004.  

Ironically, the same features that made many premium smartphones so attractive—water and dust resistance, high battery performance, shatterproof screen—likely keep owners from feeling like they need an upgrade. Headsets have become more expensive and are of higher quality, prompting consumers to hold on to them for longer. They may also feel nostalgic for features like headphone jacks and bezels, which later smartphones from Samsung and Apple have all but abandoned.

Luckily for Apple, there’s more to its business than phones. More people are buying Apple Watches and subscribing to services like Apple Music and iCloud. The services division, which includes Apple TV+, Apple Pay, revenue from the App Store, iCloud, Apple Arcade, and Apple Care, grew by 17% compared to last year. Meanwhile, the wearables, home, and accessories category generated a record $10 billion, a 37% increase year-over-year. Record sales of both AirPods and the Apple Watch no doubt helped bolster that division.

Overall, Apple reported flat revenue of $58.3 billion for the quarter, a 1% increase over last year. But its profits dropped to $11.2 billion, a 2% decline from last year, and it pulled its guidance for the quarter ending in June. Even for Apple, the future is anything but certain.

Correction: An earlier version of this article inaccurately stated that the iPhone SE was not mentioned during Apple’s earnings call.

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