Adding to the wall of worries that has crushed the share price of Apple (click ticker for report: ) during the past several months are fears that the firm doesn’t have incredible market share outside of the US. Recent estimates peg Apple’s US market share at 53.3%, up tremendously from its 35.8% market share registered a year ago. Such a figure reveals that more than half of all smartphone sales are coming from Apple, even though its phones tend to cost more than those of its competitors—even for an out-of-date model like the 4S. No one seems to be denying the firm’s top-notch execution and performance in the US. Android (click ticker for report: ), on the other hand, has seen its market share fall to 41.9% from 52.8%, even though it is platform-agnostic and Android-powered phones are often given away by mobile carriers.
In a departure from the share shift in the US, both Android and iOS have gained market share abroad, though Android’s gains have been more dramatic. In urban China, Android possesses 72.2% market share versus 19.2% for iOS. The situation is similarly divergent in the European Union, where Android holds 61% market share (up 9.2 percentage points) compared to 25.3% for iOS (up 2.5 percentage points). Though market share trends at Apple continue to perform well, it is clear the firm has a lot of ground to make up relative to Android abroad.
However, it’s important to remember that market share isn’t the be all, end all—earnings and free cash flow are. With the aggregate smartphone market growing at a rapid clip, as long as market share is preserved, total revenue and earnings should continue to expand. We wouldn’t want Apple to sacrifice margins and earnings growth just for the sake of market share. For one, lower pricing could undermine Apple’s premium product positioning, and it could lead to cost cutting and inevitably inferior products (which is counter to the firm’s reputation for quality and craftsmanship). We’re fans of the firm’s current business model, and we think Apple’s market share gains are impressive and could even accelerate as users trade up to premium smartphones over the intermediate term, particularly in China.
We continue to believe Apple has the superior smartphone business model, as evidenced by its current US dominance and that its performance abroad continues to improve. With strong holiday sales of the iPhone 5 and the iPad Mini, we continue to hold shares in the portfolio of our Best Ideas Newsletter. In fact, we would not be surprised to see the firm return to new heights before the end of 2013 (though political obstacles could pose challenging).