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Apple defies law of large numbers by booking bang-up iPhone sales

Gregg Keizer | Jan. 29, 2015
Sells nearly 75 million iPhones, 46 percent more than ever before, on the backs of the new iPhone 6 and 6 Plus.

Apple saw even bigger opportunities ahead.

Cook said that "only a small fraction" of the installed iPhone base had as yet upgraded to 2014's models, and added that Apple drew in its largest-ever number of new-to-iPhone customers as well as the highest "switcher" rate from Android during the quarter. Later, Cook quantified the upgrade rate as in the low-to-mid-teens. "So we're very, very bullish," he said.

Gottheil thought the numbers were evidence that both Apple Pay and the Apple Watch were well-timed. The huge iPhone sales will push even more retailers to adopt Apple's electronic payment technology, he said, and give the Apple Watch -- which Cook said will ship in April -- an even better chance of breaking out of the currently minuscule smartwatch market and into the mainstream.

"The only Watch buyers will be iPhone buyers," said Gottheil, pointing out that the more of the latter the more potential for the former. "And that's good news for Apple. They already have these high-satisfied customers who in many cases have shelled out $600 or $700 or $900, who will pay several hundred more for a Watch."

Apple has only revealed the price of the entry-level Apple Watch, which will list for $349. The Watch will work with the iPhone 6 and 6 Plus, as well as the 5, 5C and 5S. All but the iPhone 5 are still available, so the entire 74.6 million sold in the December quarter were Watch-compatible.

One problem that the big numbers -- whether iPhone unit sales, the money they made Apple or even the quarter's total revenue -- present for Apple is in matching them down the road, always a concern for a publicly-traded company whose stockholders want to see growth, always growth.

It came up in the Q&A section of the earnings call when financial analyst Katy Huberty of Morgan Stanley asked Cook about the sustainability of iPhone demand.

The question was fair, said Gottheil. "I don't think Apple will ever have a quarter like this one in terms of relative growth," he said, even though the absolute numbers can, and will likely be, beaten. There are simply too many headwinds, ranging from slowing growth in the overall smartphone market and Apple's high-priced positioning to fewer major improvements in the technology and Apple's saturation of the world's biggest carriers.

"Apple will settle in for the long haul," Gottheil said, meaning that it will continue to rake in billions, sell millions of iPhones, but probably not be able to reproduce the percentage boom of December.

"Is this peak iPhone?" asked Ben Thompson, an independent analyst whose Stratechery website and subscription has become a go-to resource for many who cover technology.


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