Barclays: iPhones may be upgraded faster than expected

Average smartphone replacement plan among 1,032 respondents in the U.S., U.K, China and Germany: 20.3 months.

From a note to clients by Barclays analyst Mark Moskowitz that landed in my inbox Wednesday:

Smartphone replacement cycles might not be lengthening as much as feared. 41% of survey respondents plan to upgrade their device within 12 months after original purchase date, while 77% plan to upgrade within 24 months. Based on survey results, the implied average replacement cycle is 20.3 months, which is lower than what we had expected given the slowing growth rates in global smartphones in the past year.

Battery life is top reason to upgrade device; OLED and VR/AR rank low. Device makers may need to promote how OLED can improve battery life. VR/AR ranked really low [1%], implying investor optimism around Apple’s efforts to build an AR/VR ecosystem could be overdone, similar to the AI bandwagon for IBM last year.

Maintain Equal Weight rating on Apple and $146 price target.

Note: Moskowitz would have placed 24th out of 27 in the last Earnings Smackdown if I hadn’t misplaced his estimates. My bad.

6 Comments

  1. Gianfranco Pedron said:

    ” … implying investor optimism around Apple’s efforts to build an AR/VR ecosystem could be overdone …”

    Know any investors who are super hyped about AR/VR? I don’t.

    2
    August 9, 2017
    • Fred Stein said:

      Like ! The AR/VR hype is in the media. Just my guess, better cameras contribute strongly to upgrades. Note the demand for the 7 + with dual lens telephoto.

      If Apple brings dual lens down in model size and price, that will help.

      Finally 288M older, used iPhones out there have fairly lame cameras.

      2
      August 9, 2017
  2. Jonny Tilney said:

    Brilliant Barclays analyst cannot figure out that customers cannot be ‘wowed’ by something until they have it in their hands!

    1
    August 9, 2017
  3. Fred Stein said:

    Why a $146 price target with faster upgrades and proven growth in services?

    Does MM have a DCF model for that $146 target?

    2
    August 9, 2017
  4. Gregg Thurman said:

    “Battery life is top reason to upgrade device”

    This has been true since the very first iPhone. Why WS (and everyone else for that matter) seem to ignore it as the primary driver for upgrading is beyond me. FORM DESIGN HAS VERY, VERY LITTLE TO DO WITH IT.

    An iPhone 6S 4.7″ shipped with 12 hours battery capacity. Every time a Lithium-Ion battery is recharged it losses a bit of capacity. Recharging once per day Monday thru Friday, excluding holidays leaves with a theoretical 8.75 hours of recharge capacity at the end of one year.

    “77% plan to upgrade within 24 months.”

    By the end of 2 years theoretical capacity has been reduced to 6.4 hours of recharge capacity.

    Apple warrants 50% remaining at the end of 2 years usage.

    Keep in mind that as capacity declines the user is recharging more often than when it was new. This means that battery capacity deteriorates noticeably faster in the last 6 months of 2 year usage.

    Battery deterioration is the primary reason I have held to the belief that the upgrade cycle has remained at 24 months despite WS claims to the contrary. In my opinion WS is erroneously including castoff/hand-me-downs in its upgrade life cycle. Castoffs and hand-me-downs are not purchased new and should not be included in upgrade cycle calculations.

    1
    August 9, 2017
  5. David Drinkwater said:

    Apple has a plan.
    Barclays analyst does not.
    Apple will do fine.

    0
    August 9, 2017

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