New iPhones: Apple Facing Very Different Issues At Home And Abroad

As Apple prepares to unveil new iPhones later today, the company faces increasingly different competitive marketplaces. In the U.S., Apple is thriving, hitting a record high in market share as smartphone penetration continues to rise. Abroad, the story is very different, as very inexpensive smartphones have taken root in China, Mexico and elsewhere. Today's releases of the iPhone 5S and 5c are likely to help Apple hold onto much of its share in the U.S. and make some inroads elsewhere, but vulnerabilities remain. Those looking for clear answers about the long-term health of the platform are unlikely to get much clarity today -- or even 6 months from now -- but there will be things to watch out for.

At home (and on the high end)

Now that Microsoft and Google have followed Apple down the path of making phones and the software that runs them, it might be safe to finally put to rest the ridiculous notion that smartphones are going to wind up like PCs, where Apple's market share eventually dwindled to the low single digits in the face of ubiquitous Windows machines. And, in fact, if you look at the U.S. data, it's clear the trends are very favorable to the Cupertino company.

A recent study by the Pew Research Center, found that 56 percent of Americans now report owning a smartphone and nearly half of them report that theirs is an iPhone. That's 25% of all mobile phone owners and it represents a significant jump from 19% last February and just 10% in 2011. This data, as AppleInsider noted, is consistent with comScore data showing more than 40.4% of smartphone users in the U.S. now have iPhones, the highest figure that survey has ever recorded.

The figures are all the more remarkable given the lack of an iPhone with a large screen, which separates it from every Android and Windows Phone alternative on the market. While rumors abound Apple continues to test large-screen iPhones, one won't debut today. And there's no doubt it's costing the company sales, even though it's impossible to quantify how many.

What we do know is that Samsung has sold 38 million of its Galaxy Note phablets, including 28 million in the past year alone. While that might not seem like much compared to 143 million iPhones over the same period, consider that Samsung also sold its Galaxy S3 and S4 phones in even larger quantities at the same time. It's at this point safe to conclude that Samsung is not only selling more smartphones than Apple overall (and that's by a very wide margin as it offers far less expensive models), but it's selling approximately as many high-end units too.

Whether the iPhone 5s, which will look almost identical to the existing iPhone 5, can continue to perform as well in holding off competition, not just from Samsung but from HTC, Motorola and others, is going to be the first big question for Apple in the coming quarters.

Overseas (and on the lower end)

To clear up some misconceptions, the new iPhone 5c will not, by world standards, even slightly resemble a low-end phone. Typically, low-priced smartphones are in the sub-$150 category and Apple's new offering will be more than twice that. That limits the potential market share gains for Apple globally.

For the quarter ending in June, according to Kantar, Apple had a less than 20% share in France, Italy and Germany and was below 10% in Mexico and Spain. Apple's China revenue was down in the most recent quarter as well. A lot of this is due to the fact that iPhones are simply too expensive for too many customers in those countries. And inexpensive alternatives are getting better.

Nokia 's Lumia line may not be catching fire here, but at an average price below $200, it's brought Windows Phone up near 10% in Mexico. China's homegrown Xiaomi is one of many brands with no presence in the U.S. that is selling improved smartphones for a fraction the price of the iPhone.

Into the breach, Apple will sell the 5c, an iPhone 5 with a colorful plastic shell and a price that will still give many consumers pause. But despite last year's technology, it will carry something a Xiaomi, ZTE, or Nokia still lacks: the Apple name. Though some small number of readers will find that a negative, it's worth a good deal here and abroad and it will sell millions of phones for Apple. How many depends on the price and Apple's ability to market it effectively against a sea of much better competitors than existed a few years ago.

2014, and around it goes

Whatever happens to iPhone sales in the coming months, the speculation as to where Apple goes next will start fairly quickly. The success of the 5c will be measured in volume and profitability for Apple. But if CEO Tim Cook is paying attention, he'll look past gross margin on the phone alone to the value of those customers. If they end up buying music, videos and apps about as often as existing iPhone customers, it will make sense to keep recruiting more of them -- perhaps with an even lower price going forward.

On the other side, Apple is likely already prepared for some amount of disappointment with the 5s. While Apple faithful holding onto the 4 and 4s are likely to consider it strongly for an upgrade (Apple loyalty remains around 90%), it's unlikely to win over significant numbers of converts. And in Apple's best markets, the appeal of large-screen phones and phablets will lead at least some people to shift to Android, as more than a few people I know already have.

Still, total iPhone unit sales still managed to grow more than 20% against the year-ago period, and Apple's additions of the largest carriers in Japan and China, NTT DoCoMo and China Mobile, will give it tremendous momentum to achieve similar gains in the coming year. But the company and investors are looking for the 5c to help deliver more than that, perhaps pushing toward 200 million iPhones in the next four quarters. That would be progress, but it would likely not satisfy Apple's critics. The company's supporters should hope it wouldn't entirely satisfy Apple either.

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