By far, the most important product in Apple Inc.’s (NASDAQ:AAPL) lineup is the iPhone. Despite the overall domination of Android as a mobile platform, strong iPhone sales have kept Apple as the second-largest smartphone vendor for years — and it has propelled AAPL stock. So, what happens if Apple gets knocked down a peg?
It looks like we’re going to find out. Counterpoint Research has released a report that says China’s Huawei overtook AAPL iPhone sales in June and July, moving into second place and knocking Apple down to third spot in the global smartphone market.
Huawei Beats iPhones Sales Taking Second Spot in June and July
A few weeks back, I posted about a worrying trend for Apple investors. While AAPL stock was surging to new record highs after better than expected third-quarter earnings, iPhone sales were actually underperforming the global smartphone market. China’s Huawei in particular, was coming on strong. The third place smartphone vendor was within striking distance of overtaking AAPL.
It appears that has happened, at least according to numbers from one research firm.
Counterpoint Research has released a report based on global smartphone sales to the end of July. According to its numbers, Huawei knocked Apple out of second place in both June and July, despite a mid-summer spike in iPhone sales driven by the iPhone 7 and 7 Plus as well as a refreshed iPhone 6.
Counterpoint has the iPhone 7 and iPhone 7 Plus as the two best-selling smartphones overall, with a pair of phones from OPPO taking third and fourth spot, and Samsung Electronics Co Ltd’s (OTCMKTS:SSNLF) Galaxy S8 in fifth.
However, in terms of the overall global smartphone market, Huawei’s relentless growth combined with AAPL’s sliding overall market share meant it topped iPhone sales “consistently” for those two months. Further, Counterpoint suggests preliminary numbers point to Huawei holding onto second spot in August as well.
Will AAPL Stock Feel Any Pain?
Ultimately, who is in first, second and third place doesn’t really matter all that much to AAPL at this point. Sure, the company would prefer to be in second place. Actually, it would prefer to be in first — a position it held briefly in the fallout from Samsung’s Galaxy Note 7 disaster. But what is more important to Apple at this point is ensuring iPhone sales continue to grow (which they did in Q3, albeit at 2%, that’s a slower pace than the company would like).
Counterpoint Research says Huawei is seeing strong growth in its home market of China where it dominates. In North America, India and South Asia, the company has a “weak presence.” Huawei also lacks a competitive flagship model (none of its smartphone placed in the top 10 despite its overall second place position), instead relying on volume sales of a wide range of low and mid-tier smartphones to drive those impressive gains.
That means Huawei is beating iPhone sales based on volume sales of relatively inexpensive smartphones in markets where AAPL isn’t particularly strong anyway. Long-term, brand recognition comes into play and Huawei could gain an advantage there, but for now it’s not really directly threatening iPhone sales. That means the slide to third place should have no meaningful impact on Apple stock.
September Changes Everything
The Counterpoint report focuses on June and July (and August), months that traditionally represent a sales doldrum period for AAPL. This is when consumers tend to start holding off on iPhone purchases in expectation of the new model that will be announced in September.
And this year, with the 10th anniversary iPhone 8 added to the mix — along with the iPhone 7s and iPhone 7s Plus — iPhone sales are expected to be through the roof. It seems highly unlikely that AAPL will remain in third place for long.
Huawei remains a formidable competitor in the global smartphone market, and one that Apple needs to keep a close eye on. As it builds brand awareness and continues to invest in R&D and marketing, there’s a danger that eventually Huawei starts building premium flagship smartphones that compete directly with the iPhone and targets the North American market. But for now, the jockeying over second and third place is less about iPhone sales, more about bragging rights based on mass market volume, and not something that will impact AAPL stock.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
