Much of Apple Inc. (NASDAQ:AAPL)‘s remarkable slide from more than $700 last fall to lows below $400 this spring can be explained by worries that the highly profitable iPhone is running out of growth opportunities. So far, the iPhone has achieved limited traction in developing countries, where incomes are lower and smartphone subsidies are minimal or non-existent. People in the developing world are opting for cheaper smartphones, most of which run Google Inc (NASDAQ:GOOG)’s Android OS.
Meanwhile, Apple Inc. (NASDAQ:AAPL) bears have cautioned that Apple has already saturated the market for high-end smartphones in the U.S. and other wealthy countries. However, while roughly 60% of U.S. cell phone users already have a smartphone, that still leaves room for growth. Moreover, Apple Inc. (NASDAQ:AAPL) is continuing to gain share from rival platforms in the U.S. In short, the iPhone is alive and well in the U.S., with plenty of room for further growth.
iPhone gaining share
According to the latest data from COMSCORE, Inc. (NASDAQ:SCOR), covering the three-month period ending in May, 39.2% of U.S. smartphone subscribers had an iPhone. Meanwhile, Google Inc (NASDAQ:GOOG) maintained the top spot in the U.S., with Android representing 52.4% of the market. Apple Inc. (NASDAQ:AAPL)’s share was up from 38.9% in February, despite not having released a new phone since September 2012. Part of the share gain may have been due to the iPhone’s launch on T MOBILE US INC (NYSE:TMUS) in mid-April.
The iPhone 5 launched at T-Mobile this spring (photo courtesy of Apple).
Moreover, Apple Inc. (NASDAQ:AAPL)’s share of the U.S. smartphone market was up significantly compared with the three months ending in May 2012. In that prior-year period, Apple held just 31.9% of the market, compared with 50.9% for Android. Thus, while Android is still gaining share in the U.S., Apple has been the clear winner over the past year, gaining 7 percentage points of share, mostly at Research In Motion Ltd (NASDAQ:BBRY) BlackBerry‘s expense. Research In Motion Ltd (NASDAQ:BBRY) BlackBerry’s share has dropped from 11.4% in May 2012 to just 4.8% in the most recent batch of data.
Apple’s U.S. smartphone market share growth demonstrates the success of its carrier expansion. Apple just added No. 4 carrier T-Mobile as a partner a few months ago, but it has also added Verizon Communications Inc. (NYSE:VZ) and Sprint Nextel Corporation (NYSE:S) relatively recently (in February 2011 and October 2011, respectively). Given the prevalence of two-year smartphone contracts in the U.S., Apple is still reaping the benefits of this carrier partner expansion.
For example, Verizon Communications Inc. (NYSE:VZ) recently reported that it sold more than 3.8 million iPhones in Q2, which represented an approximately 44% unit growth rate. More than half of the smartphones sold by Verizon last quarter were iPhones, even though the iPhone 5 launched more than six months before the quarter began.
The market still grows
It’s also worth pointing out that the U.S. smartphone market is still growing, albeit more slowly than previously. According to COMSCORE, Inc. (NASDAQ:SCOR)’s data, there were 141 million U.S. smartphone subscribers at the end of May, up from approximately 110 million at the same time in 2012. The U.S. smartphone user base has thus grown by nearly 30% in the past year.
Putting that together with the market share data discussed earlier, we can calculate that the U.S. iPhone user base has swelled from 35 million to 55 million in just one year. That’s obviously a very healthy growth rate for the subscriber base. Given Apple’s legendary customer satisfaction scores, it should lead to a profitable long-term revenue stream from user upgrades.