Apple’s earnings show us just how bad things are right now for smartphone makers

Apple Earnings Analysis Q1 2014

HTC and BlackBerry each reported dismal Christmas-quarter results — but they’re both terminal losers. Nokia turned in a shocking sequential smartphone unit decline in Q4 — but that’s another vendor in trouble. We saw LG report a surprise loss in its mobile division — but that company is also a bit wobbly. Smartphone behemoth Samsung even delivered a sequential handset sales decline last quarter… but, umm, maybe that was because Apple did so spectacularly well?

Except Apple just missed the iPhone volume consensus by more than 6 million units for the Christmas quarter.

No more excuses. There is no slapping a happy face sticker on the global handset market; it has suddenly acquired the greenish pallor of a serious disease. This Christmas quarter was a period when a wide range of vendors had debuted ambitious, well-received phablets (LG, HTC, Samsung), an unusually aggressively priced low-end smartphones (Nokia), and even a notable wider selection of models (Apple).

Yet vendor after vendor has now disappointed bitterly on either volumes (Apple, Samsung, Nokia, BlackBerry) or profitability (LG, HTC). This is happening just a few months after the pivotal mobile chip vendor Qualcomm clearly warned about slowing demand for high-end models.

There is little doubt now that the handset industry and Wall Street analysts have completely missed something essential about the phone market — some dreaded turning point was reached around the September-November time frame. The most likely explanation here is a sudden slowdown in high-end sales in affluent markets like North America and Europe, possibly combined with a faster than expected mix shift towards cheaper models in emerging markets.

We are now facing a genuinely fascinating March quarter. Is there a smartphone glut building globally? Will we see an escalation in price erosion as vendors fight for space in an industry that is not growing in the manner they expected?

Things could get very exciting in coming months. We may be facing the sort of battle of attrition that drove Ericsson, Siemens, Philips, Alcatel, Mitsubishi and Panasonic out of the global phone market 13 years ago when the 2001 slowdown hammered the industry.

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