Apple Seeing More Smartphone Switchers Than Ever

While Apple doesn’t like to speak specifics about how Apple Pay is doing — transaction-wise at least — the company does like to highlight one key metric: how many devices it’s selling that enable consumers to use its mobile payments app.

After all, getting consumers to buy the device is step No. 1. And that it seems to be doing very well. In fact, Apple posted its best second quarter earnings ever, thanks to the strong sales of the iPhone 6 and iPhone 6 Plus — driving Apple to a 33 percent increase in its quarterly profit, year over year. Apple posted a quarterly revenue of $58 billion and net profit of $13.6 billion.

“We are thrilled by the continued strength of iPhone, Mac and the App Store, which drove our best March quarter results ever,” Apple CEO Tim Cook said in the company’s earnings statement.

He also likes to highlight how many smartphone users Apple is snagging from the competition.

“We’re seeing a higher rate of people switching to iPhone than we’ve experienced in previous cycles,” Cook continued, “and we’re off to an exciting start to the June quarter with the launch of Apple Watch.”

That switchover rate is particularly important in helping Apple grow both its iPhone 6/6 Plus customer base, but also the number of consumers who can use Apple’s products to make a payment. In Apple’s first six months of its fiscal year, Cook reported that Apple has sold 135 million iPhones — 61.2 million of which came from Q2 alone.

“We continue to see a higher rate of switchers than we have seen in previous cycles so we are extremely excited about that,” Cook said.

In terms of securing first-time buyers, Cook said Apple is working to attract its growing number of new customers, but not at the expense of motivating current iPhone users to upgrade.

“Our current estimate is that about 20 percent of the active install base has upgraded to a 6 or a 6 Plus,” Cook said. “So as I look at that number that suggests that there is plenty of upgrade headroom, in addition to wanting to invite over as many switchers as we can. Between both of those and the first-time buyers, it seems really good right now.”

China And Emerging Markets

Although recent reports have indicated that Apple Pay is a bit of a slog in China, Cook indicated that it is at least making headway with adding UnionPay as a payments option across its ecosystem. While the world might have liked Cook to announce that Apple was rolling out its mobile payments option across China, they’ll have to be satisfied with the reports of the small inroads being made in China’s payments landscape for now.

“We added UnionPay as a payment option for customers,” Cook said in the earnings call with analysts yesterday (April 27).

It’s been well known that Apple has been investing in China, but the earnings figures reported yesterday demonstrate why. While Cook didn’t provide specifics on iPhone metrics, or other devices, in China, he did share that the Greater China region contributed to a 71 percent revenue increase in that particular area to $16.8 billion — which was a record in China for Apple.

“iPhone [sales] led the way, up 70 percent year over year. The recent estimates from Kantar mean that we would gain more than 9 points of share on a year-over year basis. From everything I can see we did extremely well,” Cook said, pointing specifically to the app store growth. “The app store had a record quarter and grew over 100 percent, year over year.”

First-time buyers, China, and emerging markets appear to be the next areas of concentration for Apple, as Cook pointed to those particular regions as strong growth areas that have helped Apple gain more global market share. Apple currently has 21 stores in Greater China and plans to nearly double that this year.

“We have been looking to expand our ecosystem [in China]. …We increased the iPhone point-of-sales to over 40,000 during the quarter; that’s up about 9 percent, year on year. More importantly than the total number, we are in many more cities than we were before. We worked significantly on our online store, which our online store revenue was up over three times, year over year.”

As for emerging markets, Cook said the revenue increase for emerging markets was up 58 percent, and he said iPhones are driving that growth.

He also said the developers market for Apple is rapidly expanding — particularly in China — paving the way for the company to make more progress in that country. Cook said the rising middle class in China has helped Apple gain its strong share across the country.

“Chinese developers are coming on in significant numbers. We’ve now made payments to developers in Greater China to almost $5 billion, over half of which was in the last 12 months,” he said. “So you see this massive development happening in the development community in China there as well. I’ve never seen the middle class come in like it is in China, and that’s where the bulk of our sales are going. We’re really proud of our results there, and we’re continuing to invest in the country.”

Apple Watch

The Apple Watch — which now supports 3,500 apps, Cook said, was another hot topic with analysts who focused their comments on supply and demand.

“We were able to deliver more customers the Watch over the weekend than we had initially anticipated,” Cook said. “We’re generally happy that we’re moving on with the ramp. It is a new product for us, and with any type of new product you end up taking some time to fully ramp. Having said that, we’re in a good position and sometime in late June we currently anticipate we’d be able to sell the Apple Watch in additional countries. ..From a demand point of view, it’s hard to gauge when you don’t have products in stores. We’re filling orders completely online at the moment. …We’re far ahead where we expected to be in terms of an application point of view.”

“Overall, worldwide we grew iPhone [penetration] 40 percent. …We grew two-and-a-half times. …In emerging markets we did extremely well,” Cook summarized. “We’re very bullish on the current quarter as well. We’re also pleased that in addition to the switcher number, we’re doing fairly well with first-time buyers, which is also a key metric for us. It’s tough to find something in the numbers not to like.”