From a note to clients by Credit Suisse analyst Kulbinder Garcha that landed in my inbox Friday:
Emerging Market Consumer Survey Takeaways. While it is often thought that Apple’s Emerging Market users could be lower quality users, our survey shows that Apple users are very similar globally with high levels of Services attach, affluent, and with similar rates of replacement. In our view, this reaffirms the quality of Apple’s installed base on a global basis. We remain comfortable with our thesis around the iPhone business returning to solid growth over the next two years with improved product mix.
High services attach. We note that Services continues to play in increasingly important role for Apple. Again, the quality of users in the Emerging Markets seem to be strong, with a Services attach of ~90%. We believe this strong Services attach could drive Apple’s Services business to double by 2020.
Implied replacement rates look solid. One concern around the Emerging Market installed base of iPhone users has been the replacement rate of these users. We note that our survey actually shows upside to our global installed base estimate of 31.5 months, with an implied replacement rate of ~30 months in these emerging regions.
iPhone users earn more, even in EM. We also see that iPhone users in Emerging Markets are on average higher income earners. For example, in China they earn almost $25k. In fact, the average annual income of iPhone users is higher than the average annual income of Android users in every country we surveyed. This supports our view that Apple is essentially addressing the growing middle class in these countries.
Reiterate Outperform, target price $160.