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Apple Inc. (AAPL) iPhone 6s Debut Wasn’t as Great as You May Believe

By now, the whole world knows that Apple Inc.  sold 13 million iPhone 6s units during its launch two weekends ago. That figure represents a 30% increase from the 10 million iPhone 6 and iPhone 6 Plus units old a year ago. That’s a significant improvement, right?

Wrong.

As is usually the case, there’s a Paul Harveyesque “rest of the story” here.

Apple Inc (AAPL) iPhone 6s

China

For starters, the numbers reported this year include sales from China. The numbers reported a year ago didn’t. That’s an inconsistency that might lead some investors to think that Apple is cooking the books.

Daniel Ives is an analyst with FBR Capital Markets. He estimates that Apple sold 2.5 million iPhone 6s units in China. That means the company only saw a 5% increase in non-China sales over the year ago period.

Five percent is good. But it’s not 30%.

Japan

Further, there seems to be lackluster demand for Apple’s new product in Japan.

Sales of the iPhone 6s in Japan were down 10-15% versus sales of the iPhone 6 and iPhone 6 Plus a year ago. Japan-based telecom carrier NTT DoCoMo also said that, while sales were strong, the overall demand for the iPhone 6s was weaker than the demand for its predecessors last year.

The silver lining here is that some research firms don’t account for Japan’s iPhone sales until October. So, there’s still a possibility that the final reports will be more in line with expectations.

Preorders

Also, Apple’s preorder period was two weeks long this year. Last year, it lasted only one week. That extended preorder period gave consumers extra time to buy the product.

Again, the comparison between this year’s sales and last year’s doesn’t seem to be on consistent terms.

Ives thinks that if Apple had extended its preorder sale to two weeks last year, the year-over-year comparison might have looked a lot worse.

Apple’s Achilles Heel

The problem with Apple from an investor’s perspective is that it’s practically a one-trick pony. Almost two-thirds (63%) of the company’s revenue in the third quarter was from iPhone sales. That’s up from just over half (53%) in the same quarter a year ago.

Also, iPhone sales growth seems to be entering the downward trend of the sales cycle. Growth in 2014 stood at 12.6%, but in 2011 it was 80.8%. That’s why some people are predicting a decline in iPhone sales growth for the company’s 2015 fiscal year.

Apple is already falling behind in China. The company commands just over 12% of the smart phone market share, compared with rivals Xiaomi and Huawei, which hold 15.8% and 15.4% of the market share, respectively.

Add the company’s reliance on smart phone sales to the fact that its iPad sales have fallen for each of the past six consecutive quarters, and there’s good reason for investors to be concerned. Apple needs to diversify its portfolio or it risks losing its place as the top tech company in the world.

Still, There is Good News

That’s not to say that all the news about the iPhone 6s debut is bad news. There are reasons for investors to think the company’s stock still has room to grow.

For example, analysts were expecting the company to sell 12 million units during its opening weekend. Apple  beat that number by a million.

So investors who believe in the company and its capacity for innovation, even with Steve Jobs having passed on to his great reward, might still see a silver lining. However, the news for Apple isn’t as good as the headlines indicate.

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