Apple: Katy Huberty calls BS on the three-year cycle

According to new Morgan Stanley research, customers are still talking about buying a new smartphone every two years.

Smartphones aren’t headed for a three-year cycle, says Morgan Stanley’s chief Apple watcher, contradicting last month’s supply chain rumors, today’s Wall Street Journal, and conventional wisdom on the Street.

“We’re actually quite bullish,” says Katy Huberty in a video released to clients Tuesday.

According to a new AlphaWise Survey of smartphone owners in seven countries, the market may in fact be setting itself up for what Huberty calls a “potential supercycle.”

Most analysts’ estimates for Apple and Samsung, she says, imply that customers are sticking with their current phones longer and longer, stretching a replacement cycle that used to be 24 months to nearly 36 months.

But that’s not what customers are saying.  The replacement cycle has not changed materially in the seven smartphone markets surveyed. If anything, according to AlphaWise, customers are even more eager to buy new phones this year than they were last.

In the U.S., for example, average intended smartphone life—months since last purchase plus months until next purchase—has shrunk to 24 months from 29.5 months in 2015. In China it’s up a bit, but only to 22 months. Average replacement cycle in the seven largest markets is now 23.1 months, down from 24.6 months in 2016.

“We think that creates a coiled spring, where we could potentially see an acceleration in growth,” Huberty tells her clients.

Supporting the coiled spring theory is the chart below, offered by Morgan Stanley telecom specialist Simon Flannery. It shows what could be a lot of pent-up iPhone demand. For example, more than a third of the iPhones owned by AT&T customers are already at least three years old. At Verizon, nearly 44% are iPhone 5S or older.

Screen Shot 2016-06-21 at 11.49.40 AM

Click to enlarge. 

One last chart, courtesy of Huberty. It shows Apple’s share price bottoming out in April 2013, six quarters before the launch of the blockbuster iPhone 6.

If the 2017 iPhone is indeed the the one to wait for—as the latest wave of reports has it—then by Huberty’s reckoning now might be the time to bulk up on Apple.

Screen Shot 2016-06-21 at 11.49.30 AM

12 Comments

  1. Richard Wanderman said:

    So far my wife and I have been on a 2-3 year cycle but for me, an important technological change, like wireless charging would get me to upgrade sooner given that I have a new truck that has that feature and it would be great to use it.

    If Apple dumped the analog audio port that might have an affect on this cycle for some given the amount of yelling there’s been about this. I use Bose QC25 headphones but would have no problem either getting an adapter or even upgrading my phones to the newer Bose QC35 which are wireless.

    I don’t care about having the latest stuff, just tools that work well and have the features I want to use.

    0
    June 21, 2016
  2. Fred Stein said:

    I call BS on the two year “death and transfiguration” drama of Apple’s stock price.
    First: Dec ’07 to Dec ’09; Then: Aug ’12 to Aug ’14.

    0
    June 21, 2016

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