Apple: A deep dive into the iPhone installed base

I can't vouch for BMO's forecasts, but the charts are cool.

From a note to clients by analyst Tim Long that landed in my inbox Sunday night:

Installed base growth remains robust. We estimate total iPhone installed base hit 715 million, including 228 million of second-hand devices, in December 2016, with year-on-year growth of 20%. We model year-end installed base to grow 13% in CY17 and 9% in CY18. We estimate, by the end of 2018, there will be 300 million second-hand iPhones in use.

Installed base age positive into the next refresh cycle. We are refreshing our highly granular iPhone installed base model. We estimate 31% of the new phone installed base will be 2 years or older at the time of the September 2017 launch event. Although refreshment cycles are lengthening to 2.5+ years, which means not everyone will take advantage, the availability of un-upgraded phones will serve as a tailwind as Apple launches the new models.

Goal of double Services revenue is ambitious but achievable. We are also refreshing our breakdown of Apple’s $24 billion Services business. App Store sales remain the single biggest contributor, with $7 billion of revenue in FY16 and defensible double-digit growth, but other businesses like Music and iCloud are also going to be key contributors in the coming years. We model four-year Services growth of 15% CAGR, shy of management’s goal of doubling the business in four years. However, in this report we outline the key metrics that Apple will need to improve in order to reach the target.

Reiterate Outperform and $160 price target.

Four charts:

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Click to enlarge. Not seeing? Try the website.


  1. David Emery said:
    The growth in used phones certainly argues against the “planned obsolescence” accusation against Apple.

    March 6, 2017
  2. Fred Stein said:
    The robust used iPhone market demolishes the “premium’ price myth in two ways:
    One: Used iPhone sell for well under $400 on average. So indirectly Apple does address the mid-tier.
    Two: Upgrade buyers receive a major virtual discount by selling their used iPhones.

    The used iPhone base also dents the market share comparison, which is based on new Smartphone sales. Total install base is a more meaningful metric, but only if you see Apple’s iPhone as a platform vs. a device.

    March 6, 2017
  3. Stephen Young said:
    Does anyone know if Apple reports Apple Music’s total revenue on services or Apple’s cut? I ask because I assumed it was total revenue unlike the App Store revenue. The reason I ask is because the 2020E for Apple Music is ~$3.5B which only adds up if BMO is estimating profit and then I would where that comes from.

    March 7, 2017
  4. Robert Paul Leitao said:
    Over time as the installed base grows larger, the length of the refresh cycle has a diminishing impact on the company’s aggregate results and becomes gradually less important. What increases in importance is customer engagement in the app economy and the revenue generated from apps, content and services.

    While Apple is creating a serial device purchase relationship with customers, it’s the customer who chooses the pace of device replacement. That’s the way it should be because the extended useful life of the iPhone invites more consumers into the eco-system and promotes the consumption of constantly recurring revenue streams such as Apple Music subscriptions and iCloud storage services. Remaining in productive service for a second or even a third user reduces the cost barriers for eco-system entry and participation.

    Over time, as the customer base continues to grow, the only real negative to a longer refresh cycle is the risk a segment of iPhone users won’t have access, due to device obsolescence, to the latest versions of iOS and hence the latest services to consume on a constant basis. That isn’t a real risk at the present time.

    March 7, 2017

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