Apple Q4 Earnings: iPhone Air Performance in Spotlight

Apple’s upcoming earnings report is poised to be a pivotal moment for investors, primarily due to its inclusion of the initial sales figures for the iPhone 17. The report, encompassing sales data up to the end of September, will offer insights into the performance of Apple’s latest smartphone lineup, which hit the market on September 19th. The financial community has responded positively in anticipation of the report, with analysts boosting Apple’s stock amid signs of a successful iPhone 17 launch, based on preliminary industry assessments.

However, the Street’s analysts will be scrutinizing Apple’s commentary on demand patterns, seeking confirmation of a potential “super-cycle” – a resurgence in growth following the zenith of iPhone revenue in fiscal year 2022. Current projections, according to analysts surveyed by FactSet, indicate that Apple is on track to eclipse that previous peak in fiscal 2025.

Numerous third-party analyses from industry research firms have suggested a robust uptick in iPhone sales this cycle. The entry-level iPhone 17, equipped with an accelerated processor and an enhanced screen refresh rate, has reportedly garnered particular traction, alongside the iPhone 17 Pro models distinguished by their all-aluminum chassis and optimized battery performance. Analysts attribute this consumer behavior to the combination of advanced features with attractive pricing tiers, especially in emerging markets where value proposition is paramount.

Conversely, the newest addition to the iPhone family, the iPhone Air, hasn’t quite mirrored the success of its counterparts, indicating potential segmentation challenges and a need for diversified marketing strategies by Apple.

“Initial indications suggest a more restrained adoption rate for the iPhone 17 Air than initially forecast by some observers,” noted Aaron Rakers, an analyst at Wells Fargo, highlighting the nuanced performance dynamics within Apple’s product portfolio.

This narrative isn’t entirely unfamiliar for Apple, which typically observes peak growth periods coinciding with the introduction of new iPhone models that broaden its product range. However, since expanding to a four-phone lineup in 2020, Apple has faced challenges in achieving consistent sales performance across all four models, with the fourth phone often trailing behind the standard iPhone and the Pro variants. Over the past few years, Apple has experimented with variations, transitioning from the “Mini” iPhone to a “Plus” iPhone with an expanded screen, and now, the introduction of the “Air.” The underlying hypothesis being to identify which model best resonates with unmet consumer demands without cannibalizing sales of existing flagships.

While Apple refrains from disclosing individual sales figures for each device, CEO Tim Cook and CFO Kevan Parekh routinely offer contextual insights during earnings calls, providing color on product launches and elaborating on the prevailing demand dynamics. Industry experts see such qualitative commentary as invaluable in extrapolating actionable market intelligence, especially in gauging future investment opportunities.

Upon the introduction of the $999 iPhone Air in September, Tim Cook positioned it as an “iPhone that embodies the essence of the future.” In terms of pricing, it strategically sits between the iPhone 17, starting at $799, and the iPhone 17 Pro, which commands a premium with a $1,099 starting price. Supply chain analysis suggests this positioning aimed to address the price-conscious consumer without fully entering the mid-range market dominated by Android competitors.

The iPhone Air distinguishes itself with its thinner and lighter profile compared to other iPhones, albeit accompanied by certain trade-offs. It features a single camera lens and a slightly reduced battery life compared to its siblings. Nonetheless, it remains the sole iPhone model this year to incorporate a notable design revision, and initial reviews have been generally positive. It is speculated the design was intended to appeal to fashion-conscious consumers who favor minimalist aesthetics.

Sales in China could potentially improve the iPhone Air’s performance. Its availability in China was delayed until earlier this month, and subsequent sales witnessed rapid sell-outs, according to reports, indicating a latent demand that could bolster its overall market performance.

However, current data points towards a prevailing preference for familiar iPhone models among consumers.

Nikkei, a Japanese financial publication, reported last week that Apple has “drastically” curtailed component orders for the iPhone Air while concurrently increasing orders for its other iPhone 17 models. This move signals a potential course correction to optimize inventory and meet stronger-than-anticipated demand for flagship models.

Ming-Chi Kuo, a supply chain analyst at TF International Securities renowned for his accurate predictions of Apple’s future strategies, corroborated the report, citing the iPhone Air’s performance falling short of expectations. He said that the current iPhone Air data suggests the company might need to reassess their product segmentation strategy to better address the demand in each category.

“This suggests that the existing Pro series and standard models effectively address the majority of high-end user demand, leaving limited space for carving out new market segments and positioning,” Kuo elaborated on social media. This also raises questions about the saturation levels of the high-end smartphone market, which could see increasing competition and pricing dynamics moving forward.

In many respects, the underperformance of the iPhone Air doesn’t fundamentally alter Apple’s trajectory. However it may influence Apple to explore new innovation in areas such as software and AI to create competitive advantages in the current market.

Since 2020, Apple has consistently released four new iPhone models each fall. However, history reveals that one of these four models often trails behind its counterparts in sales performance, leading Apple to experiment with different models to pinpoint a winning formula. This constant innovation and testing of new market territories is representative of the wider tech industry and their constant drive to find something new that sticks with consumers.

Prior to the Air, Apple offered the iPhone “Plus,” positioned in the middle of the lineup with comparable specifications to the standard iPhone but with a larger display, priced at $899. Apple experimented with this variant from 2022 through 2024.

According to analysts at Goldman Sachs, lead times – the estimated time Apple quotes for shipping a device on its website – indicate that demand for the iPhone Air is on par with its predecessors, suggesting a level of market consistency across iterative models. As such, the real strategic direction of Apple may be more long term or innovative and can not be accurately extrapolated from the lead times of their current models.

“Lead times for the iPhone Air were initially lower than those of the iPhone 16 Plus but have subsequently surpassed the iPhone 16 Plus and are now marginally below those of the iPhone 15 Plus,” noted Michael Ng, an analyst at Goldman Sachs, in a research note this month. From a purely consumer standpoint this change may be viewed as almost unnoticeable, but from an industrial view shows the constantly shifting landscape of smartphone demand and consumer behavior.

Before the “Plus” series, Apple’s fourth iPhone variant was the iPhone Mini, priced lower than the standard iPhone upon its introduction in 2020. However, consumers didn’t embrace its smaller screen, leading to its eventual discontinuation. This shows that Apple isn’t afraid to get rid of what doesn’t work, and is willing to fail in innovation in order to ultimately find the technologies that can progress the tech sector to the next stage.

Analysts theorize that the iPhone Air could serve as a foundational element in a more diverse lineup, potentially including a foldable iPhone. Its slender design mirrors half of a potential foldable phone, according to tech critics. Moreover, the absence of a numerical designation in the iPhone Air’s name suggests that it might not be subjected to annual updates, allowing Apple to explore innovative concepts or form factors. It may also signal a shifting mindset within Apple, where a product is no longer an annual upgrade, but instead a long-term product to be refined over years to come.

Ultimately, if Apple’s other iPhone models continue to experience robust sales, investors might not be overly concerned about the Air’s relative underperformance, particularly if new designs contribute to maintaining the lineup’s appeal. The strategy here would see Apple rely heavily on innovation and the consumer mindset and use them to influence the direction of new smartphone and other technologies around them.

“We believe that Apple has the capacity to uphold the relevance of smartphones through design modifications to the iPhone,” commented Ng, the Goldman Sachs analyst. “For instance, subsequent to the debut of the thinner iPhone Air form factor this year, Apple is anticipated to introduce its inaugural foldable iPhone in 2026, followed by an all-screen display iPhone in 2027.” This highlights Apple’s commitment to long-term technological and engineering projects, something that is expected from tech giants of the modern era.