Piper Jaffray: The 5G iPhone will be a “major” upgrade

New survey suggests an 2020 upgrade cycle that’s closer to the iPhone 6 Plus’ than to the iPhone X’s.

From a note to clients by analyst Michael Olson that landed on my desktop Thursday:

CONCLUSION: We expect Apple will ship 5G iPhones in 2H’20. While early to be talking about devices that will not hit the market for over a year, the 5G iPhone’s integration into the investor narrative around AAPL shares has already begun. Our second survey of >1,000 U.S. iPhone owners shows 23% are interested in purchasing a 5G iPhone, up from 18% in our Jun-19 survey.

We see this as a high level of interest given limited 5G marketing/chatter to date and the high price point suggested in our survey. Looking at the remainder of FY19, we expect limited excitement around this year’s iPhones (to be announced on 9/10), however, as long as services and non-iPhone devices continue to perform well, this should tide investors over until anticipation for 5G iPhones intensifies.

5G iPhone Should Drive Upgrades in FY21 & ’22. The last “major” iPhone cycle was iPhone 6 Plus, which drove 52% y/y iPhone revenue growth in FY15; even the Nov-17 release of iPhone X drove 17% growth in FY18. The launch of 5G iPhones (enabling materially faster data transfer) should drive upgrades, especially as the 5G infrastructure improves and apps leveraging 5G permeate the App store. We are conservatively modeling 2% y/y iPhone revenue growth in FY21 (essentially in-line with consensus).

Maintains Overweight rating and $243 price target.

My take: Piper Jaffray actually counts heads and runs surveys. You’d be surprised how few firms do that.

7 Comments

  1. Kirk Burgess said:

    Weird they refer to the iPhone 6 year as “iPhone 6 plus”. yes the 6+ was introduced at the same time as the 6, but the 6 was the big seller that year that drove the “supercycle”

    3
    September 5, 2019
    • Gregg Thurman said:

      Upgrading, when I did, to the iPhone XS Max 256 GB was predicated on my belief that a 5G I Phone would not be released until September 2020. By then my XS would be 1 month shy of paid off, and would have resell/trade in value such that upgrading to 5G will only cost about $600.

      I agree that most (nearly all?) iPhone upgrades do not think like that about their next purchase, but when the reality of their net upgrade (5G) cost will be sinks in I see a surge in buying.

      Remember, we will have a full year of Apple Card enrollment under our belt by then, so whatever trade in value owners may receive, they will get an additional 3% cash back. Further, I think there will be a surge in Apple Card enrollment caused by interest in a 5G iPhone. Then after using the Card a few times holders of the Card will naturally gravitate to making it their primary.

      Lastly, I see an Apple debit Card launch around the same time. Debit card usage exceeds credit card usage everywhere.

      3
      September 5, 2019
  2. Jerry W Doyle said:

    Smartphone owners (including Apple iPhone owners) are holding their phones longer because of initial price and because of the quality of the devices (and software upgrades) allowing phones to run efficiently, longer. This is the year many, including myself, normally would upgrade (every two years) from my iPhone 10 model. So, yes, the findings of the Piper Jaffray survey comes as little surprise.

    A caveat, though. 5G still will not be omnipresent. Hell, we still do not have quality 4G coverage today once folk leave major urban areas. We still lack quality 4G coverage even in mid-size cities. I live in a populated area of around 75,000 and even within the peripheral of my urban area I often can’t even download my email. So, I easily can see some folk skipping an upgrade to the 5G initial phone generation and waiting for the subsequent year model improvements where the bugs are worked out fully and 5G infrastructure coverage expands. I may do so myself, which means that I will allow my iPhone 10 to carry me four years, then shell out the $1,000 plus for an upgrade.

    We see this type behavioral delay everywhere as prices rise and as quality of product improves. Think automobiles and how much they cost these days and how more efficient the cars are to run longer. Consumers are doing similarly. They hold their cars longer before buying new ones.

    Additionally, we see increased numbers of consumers because of price increases settling for used vehicles with low mileage and only a few years old. I suspect we will see a similar behavioral pattern of increased iPhone buyers purchasing “refurbished” older iPhones. I already am seeing this behavior among many of my friends who do have the discretionary dollars to purchase the new phone models, but choose instead to get a phone that is one to two years old.

    My take, yes 5G will be a big upgrade year, but it may not blow the wheels off as some folk may be suspecting or hoping.

    4
    September 5, 2019
  3. Fred Stein said:

    Gregg and Jerry raise good points. And they’re more relevant than surveys about intent for a fictitious phone at a fictitious price a year from now.

    1
    September 5, 2019
    • Aaron Belich said:

      The six and six+ were black swans. First time there was full support from China telecoms and the first phablet sized phones to satisfy a massive pent-up demand for the prior two years. Two things that will never come down the road again in the future, at least not for iPhone. Analysts are godawful understanding history. Oh wait they aren’t paid to look back, only look forward and fabricate crackpot ideas.

      5G has no critical feature other than bandwidth, no robust infrastructure (2-3 years internationally at the earliest). 4G/5G is the 1080P HD to HDR 4K race that’s taken the better part of the last decade to transition to. Apple will be in no rush. Maybe the Pro lines of all devices will get 5G… maybe in a couple years.

      1
      September 6, 2019
      • Aaron Belich said:

        Wait I misspoke… HD to 4K has spent the better part of the last two decades making the transition, and only by 2020 do analysts believe that more than 50% of TV’s in US households will be 4K sets. 5G will see a similarly slow transition, possibly a skosh faster.

        0
        September 6, 2019
      • John Butt said:

        You are mostly right, especially about timing. However 5G brings a dramatic change in latency, the speed difference is irrelevant.
        The latency reduction will drive its use in things other than phones though, where almost nothing will change. The main feature of 5G is instant response times for say vehicle management, think self driving aids, plus a lot of IoT enhancements.

        1
        September 6, 2019

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