“The iPhone business has, over the last 6 quarters, reported stable results for the first time in its history.” —Loup Ventures’ Gene Munster
From a note to subscribers posted Monday:
The reoccurring negative in the Apple story is an elongated iPhone replacement cycle. The logic is that people have been holding on to their phones longer because the annual incremental features are less compelling. Small changes to the length of time people hold onto their phones can have a measurable impact on iPhone demand. If, for example, the entire iPhone base holds onto their phones for an additional 3 months in a given quarter, that would effectively reduce the iPhones sold in that quarter by 18M units or 8%. This could obviously turn a stable business into one that is declining at near double digits…
In the future, will consumers hold onto their iPhones longer than they do today? This lengthening iPhone replacement cycle perspective has credibility because the cycle has lengthened in the past. Take, for example, in 2015, during the iPhone 6 cycle, we estimate the average upgrade duration was about 2.4 years. We believe during FY16 that duration increased to 2.8 years, in part causing iPhone units to decline 8% y/y….
The key question is: will consumers hold onto their phones longer in the future? We don’t definitively know, but what we do know is the iPhone business has, over the last 6 quarters, reported stable results for the first time in its history. The product went through a period of hyper growth (80%+), modest growth (15%), back to hyper growth (35%+), and finally into decline after the iPhone 6 (-8%). During the iPhone 7 cycle and into the beginning of the iPhone 8/X cycle (the past 6 quarters), the iPhone business has stabilized. Average unit growth during that period was 2% with a range of -1% to 5%.
We believe this stability could only happen with a consistent replacement cycle. We also know that the smartphone is the most important technology a consumer owns and even absent of compelling new features, upgrading is a necessity based on degradation of battery life, screens, and processing power.
My take: Speaking of screen degradation, I spent three hours yesterday in a Cleveland Apple Store replacing the screen of an iPhone X that had gone completely nuts. Anybody else here suffering from what the internet has diagnosed as “ghost touch syndrome”?