Cybart: New iPhone X, X+ will spur upgrades not seen since iPhone 6, 6+

In a post to Above Avalon subscribers Wednesday, Neil Cybart showed his math.

After doing the hard work of estimating the size of Apple’s installed base of iPhones (758 million) and the number of pre-owned iPhones in use (150 million), Cybart added the two together to get a total iPhone user base of 908 million.

What does that mean for sales of the new iPhones Apple is expected to unveil in less than two weeks?

From Cybart’s “Thinking about iPhone Upgraders” ($):

The implication is that Apple has a significant number of iPhone users who are still on their first iPhone from either Apple or a third-party retailer. We are looking at upwards of 150M to 175M users when looking at those who entered the iPhone installed base in 2015 and 2016. These users have been using their iPhone for between two and three years. Considering Apple sells older iPhone models at lower prices, a portion of these users have iPhones that are between three and five years old.

As we saw with the iPad business, just because a large portion of the installed base hasn’t upgraded, that doesn’t mean that those users will rush out and buy the next release. This dynamic represents the major difficulty in forecasting iPhone upgrade trends. The overall iPhone upgrade cycle is getting longer each month. It is certainly possible that a good portion of those 150M to 175M users may hold on to their iPhone for another two or three years.

My FY2019 iPhone sales estimate assumes iPhone upgraders will represent nearly 70% of overall iPhone sales (160M out of a total 231M iPhone unit sales). This would represent a record-high percentage. I’m assuming the 2015 and 2016 bucket of iPhone users represent nearly a third of those upgraders, with the other main piece coming from the 2013 and 2014 bucket of iPhone users. (emphasis mine)

My take: If Cybart is right, and 160 million iPhone owners upgrade to new phones in the next 12 months, that’s 21% of the installed base and 18% of the total user base. Impressive, but a lot less than the 48% of iPhone owners in Gene Munster’s survey who said they intended to upgrade. See Survey: 48% of iPhone owners intend to upgrade within year

5 Comments

  1. Fred Stein said:

    I like the way Cybart thinks and the detail to back it up.

    Most analysts ignore the price sensitive IB. Those customer don’t move the ASP higher. Used iPhone buyers aren’t even counted as sales. The resale value of used phones lowers the net cost for new iPhone buyers. Price sensitive buyers contribute to services revenue. Over time, some of today’s budget constrained buyers will move up market.

    All of the above speaks to Apple’s long-term earnings potential, which is the only valid basis for stock price valuation.

    1
    August 30, 2018
  2. Gregg Thurman said:

    I’m always confused by these estimates of iPhone sales.

    Does 160M out of a total 231M iPhone unit sales mean that the remaining 71 Million iPhones sold in Cybart’s estimate represent ‘switchers’? That would be huge and frankly, I’d see these as ‘switchers’ to the iPhone X/Plus vs last year’s price reduced models. ASP growth?

    After changing my growth rate average from 3 years to 4 years (which includes the iPhone 6 growth rate bump) last night I get 235 Million iPhones sold during FY2019. The 3 years average assumed that unit growth would be driven by the limitations of a saturated market. I think that is still true, but it does not take into account the rather large number of switchers Cybart’s full-year estimate implies.

    Plans to ‘switch’ could be part of the very low sales numbers of the Galaxy S9 and Note. It also means that Samsung’s attack ads re lack of a headphone jack are falling on deaf ears, which translates to Apple being right to dump it.

    Of course, all this means expanding market share for iPhone.

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    August 30, 2018
    • Gregg Thurman said:

      Here’s an excerpt for Loop Venture’s note published yesterday.

      Of the Android group, 41 (19%) intended to buy an iPhone in the next year. This compares to 12% of Android users planning to make the switch last year.

      Of course, these numbers are dependent on intent to buy vs. actual purchase conversion rates. Still, the higher intent numbers (+58% YoY) imply higher ‘switcher’ numbers even if conversion rates remain constant.

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      August 30, 2018
  3. John Kirk said:

    I read a dumb article — by an author who should know better — that said the new iPhone X whatever was not going to “save” Apple. Well, let’s start off with the fact that Apple doesn’t need “saving”. But setting that aside, I think Cybart is on the right track and the doomsayers are getting it wrong…yet again.

    Last year Apple came out with the X. It came out late. Many people bought the 8 because they didn’t want to wait or because they didn’t know if the X was worth waiting for. When the X finally became available for sale, it became Apple’s best-selling iPhone and it’s continued to be their best seller ever since. Horace Dediu recently revealed that he expected the iPhone X to capture the sales title in its initial quarter with the 8 then taking the title for the remaining quarters. He was wrong. But I think his expectations were pretty reasonable and might well have been what Apple thought as well.

    I have no idea how many phones Apple is going to sell, but I can tell you this. I bought an X last year and I am buying the biggest damn phone they sell this year. Now I doubt there will be a whole lot of people like me, but I have no doubt that a TON of people are going to be upgrading their 6’s and 7’s and even 8’s to get their hands on one of the three new phones Apple is selling in 2018.

    Does that mean Apple will enter a “supercycle”? Probably not. We’re at the top of the “S” cycle and Apple only skims the premium cream from the pool of potential buyers. But there have been indications that a lot of Android owners are interested in switching. And that an above average number of iPhone users are interested in upgrading. Predictions are always perilous, but I’m predicting a BIG quarter (and almost certainly a big year) for iPhones and for Apple.

    And here’s the thing. When I write this kind of stuff, I think it’s — “duh” — obvious. This just isn’t that hard. What’s hard is trying to understand why analysts work so hard at ignoring the obvious so that they can continue to be wrong year-in and year-out.

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    August 30, 2018
  4. Gregg Thurman said:

    What’s hard is trying to understand why analysts work so hard at ignoring the obvious so that they can continue to be wrong year-in and year-out.

    Statement of the year.

    I have no doubt that a TON of people are going to be upgrading their 6’s and 7’s and even 8’s to get their hands on one of the three new phones Apple is selling in 2018.

    I’m thinking of the buyers of the iPhone 6 Plus, iPhone 6S Plus, iPhone 7 Plus, iPhone 8 Plus (all 5.5″ screens). These are all buyers that want maximum screen sizes. An iPhone with a 6.3″ screen (iPhone X Plus) in the same form factor as their current Plus iPhones is going to be very attractive to them, even if it costs about $17/month (maximum) more than their original 2-year installment plan.

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    August 30, 2018

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