iPhone will continue to drive Apple's business, analyst sees 220M sold in both 2018 and 20...

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While services will continue to grow into a massive entity on its own, longtime analyst Gene Munster says that the iPhone will remain a "stable business for the next few years."

iPhones in Loup Ventures' new note on Apple as a Service


Apple's iPhone business will remain stable for years to come, which will in turn drive the company's service business -- leading to further stock appreciation and more cash returning to investors.

That's according to Gene Munster, the longtime, much-watched Apple analyst who founded the venture capital firm Loup Ventures in 2016. Munster this week released the first note in what's scheduled to be a multi-part series on "Apple as a Service."

A new paradigm





Munster introduced the "Apple as a Service" story last week, comparing the "new paradigm that drives investor thinking on the Apple story" to such past Apple inflection points as the original period of Mac growth, the arrival of the iPod, and the iPhone.

He predicts that Apple's strength, in the future, will be less about product hype and unit sales figures, and more about ongoing services and sustained iPhone sales.

Room to grow

Munster's new research note, called Apple as a Service Part 1: Entering a Period of Greater iPhone Visiblity, looks at the changing iPhone business and what it means. In the note, Munster states that "the Apple story is well positioned for future appreciation based on a longer-term, more sustainable investing paradigm."

Loup Ventures sees the current iPhone base at about $800 million, and agrees with the Wall Street consensus that Apple will sell 220 million iPhones in both the 2018 and 2019 calendar years. Munster is skeptical, however, that Apple will make major inroads among those who currently own feature phones.

Munster also believes that the upgrade cycle has stabilized. While the cycle has lengthened in the past, he notes that Apple "has reported stable results for the first time in its history" in the last six quarters, with average unit growth over 2 percent in that period.

Apple has consistently posted a high retention rate for the iPhone, notes Munster, indicating that customers are happy with the product.

"For years there have been prediction that feature-rich competitors would decrease iPhone loyalty," Munster wrote. "And that simply has never played out."

Munster's note follows Apple announcing better-than-expected iPhone sales in the most recent quarter, following weeks of analyst predictions of soft iPhone demand.

More to come

According to Munster, future "Apple as a Service" discussions will cover such topics as the iPhone's importance to Apple's services business overall, capital returns, and new products in the pipeline.

Comments

  • Reply 1 of 11
    78Bandit78Bandit Posts: 188member
    As negative as I usually am regarding the plateau/maturation of the iPhone market, I think there is a reasonable chance Apple may match the 235 million units they sold back in FY 2015 if the rumored LCD devices turn out to be quite decent.

    Despite the outcry among the Apple faithful that the iPhone X is selling well, I don't think there is much argument it isn't selling as well as originally hoped.  This was supposed to be a "supercycle" year driven by people who were putting off upgrading and waiting for the new AMOLED device that would challenge the design of the Galaxy S7/S8.  Anticipations were high for 80 million units of the device to be sold and the drive to new record numbers of phones that would surpass the previous record set back with the introduction of the iPhone 6.  Indications are that didn't happen and the X will wind up selling closer to 40 million units and overall unit sales will be stagnant yet again for FY 2018.

    Now if Apple can put something out in the $700 range that replaces the four-generation old design of the iPhone 8 that will be competitive with the best of the Android devices then I think sales could spike next year.  Strictly anecdotal but I'm holding on to my iPhone 6 and I know others in my social circle who purchased an iPhone 7 or one of the BOGO iPhone 8 this year simply because of the price.  The $1K price of the X was quite simply a non-starter despite it being the top-line model.

    Apple left behind its core users this past year with the exclusive push into the luxury goods market and the rehash of the iPhone 6 design for a fourth generation.  The loyal customers who purchased $649 and $769 regular and plus devices in record numbers beginning in 2015 were left out in the cold, and were even kicked in the gonads with a $50 price increase for the same old design.

    Hopefully this year Apple will strike the right balance and give the mainstream customers something worthy of desire.  If they can do that then I think sales could increase above the 220 million plateau they have had for the past three years.
    edited May 14
  • Reply 2 of 11
    nunzynunzy Posts: 658member
    Go away Munster, nobody cares. I thought he was done with Apple. Typical analyst.
  • Reply 3 of 11
    sflocalsflocal Posts: 4,196member
    Munser is/was a nobody.  Why AI continues to push this guy's "guesses" is beyond me.  Sure he's an "analyst", but he's about as good as the penny fortune teller.  Why not pick any schmuck of the street for their AAPL opinion instead of Munster's as they are both about as correct as can be?

    So basically this guy's prophecy is "Apple will continue selling a lot of iPhones".  Yeah, well like... "Duh".

    He gets paid for this stuff?
  • Reply 4 of 11
    thttht Posts: 2,815member
    78Bandit said:
    As negative as I usually am regarding the plateau/maturation of the iPhone market, I think there is a reasonable chance Apple may match the 235 million units they sold back in FY 2015 if the rumored LCD devices turn out to be quite decent.

    Despite the outcry among the Apple faithful that the iPhone X is selling well, I don't think there is much argument it isn't selling as well as originally hoped.  This was supposed to be a "supercycle" year driven by people who were putting off upgrading and waiting for the new AMOLED device that would challenge the design of the Galaxy S7/S8.  Anticipations were high for 80 million units of the device to be sold and the drive to new record numbers of phones that would surpass the previous record set back with the introduction of the iPhone 6.  Indications are that didn't happen and the X will wind up selling closer to 40 million units and overall unit sales will be stagnant yet again for FY 2018.
    I don’t think it is much of a difference if Apple sells 215m or 230m units. So, maybe they sell 235m units in their FY2019 year, where there is a both a cheaper LCD variant and large display OLED variant of the iPhone X industrial design, but it is still only about 10% difference from the 215m units they been selling the past 3 years (including the FY18 year that’s half over). 10% is basically year to year variations. Ie, a stable business.

    The so-called supercycle in Apple FY15 was a 36% increase from the FY14. 170m units to 231m units. No one in their right mind is saying Apple can sell 250m to 300m units without a serious change in how they do business if there is another supercycle like in FY15. Apple already is taking the top 10% of the market, with ASPs in the $700 range. They don’t have any customers left to sell to, so I think it will be stable at 220m units with single digit swings in units sales YoY.

    You can argue there isn’t any feature out there to drive the existing customer base to upgrade early and to draw in more non-iPhone users. It wasn’t going to be AMOLED. It’s not going to be Face ID. For FY15, hindsight says it was really having bigger displays that drove units sales, and not much else. Can’t play the bigger display card again and generate another big increase in growth I don’t think. I don’t think folding displays will do it. It’s not going to be better battery life, not VR nor AR, or voice interfaces. I’m seriously contemplating just getting a new battery for my 6S Plus and using it for a fourth year even, as there really isn’t an upcoming feature that is a must have.

    Apple taking the top 10% and maintaining sounds really good from a business point of view though.
    watto_cobra
  • Reply 5 of 11
    Apple is basically treading water with iPhones and they don't mind coming in third or fourth place while most other companies are swimming at full pace to become the first across the line. That's the main reason why the big investors don't have much interest in Apple. Big investors seem to be mainly interested in backing those companies that are way ahead of the rest of the pack. Apple is doing OK selling iPhones and that's good. However, imagine if Apple updated their full line-up of computers, how much more revenue they'd make. It's as though Apple is only putting effort behind their iPhones and neglecting their other products. Does that even make any sense to most of you?

    Anyway, as an Apple investor, I'm going to be satisfied if Apple can keep iPhone sales stable for years to come. Maybe the best long-term plan is Apple taking the cream and leaving low-fat milk for the rest of the manufacturers. In that time, Apple may actually come out with some new groundbreaking product or services that will add to that iPhone revenue. I trust Apple is playing a long game even if I can't see it. Wall Street seems to be so excited about cloud services and artificial intelligence and Apple doesn't really have anything in that space. Apple isn't interested in data-harvesting either. That's three things that get all of Wall Street's endless praise and Apple is excluded from all of them. Whatever happened to Apple's push in AR? I don't really see anything Apple is doing with it. I guess I expected all these amazing iPhone and iPad apps that took advantage of AR, but where are they.
    edited May 14
  • Reply 6 of 11
    thttht Posts: 2,815member
    sflocal said:
    Munser is/was a nobody.  Why AI continues to push this guy's "guesses" is beyond me.  Sure he's an "analyst", but he's about as good as the penny fortune teller.  Why not pick any schmuck of the street for their AAPL opinion instead of Munster's as they are both about as correct as can be?

    So basically this guy's prophecy is "Apple will continue selling a lot of iPhones".  Yeah, well like... "Duh".

    He gets paid for this stuff?
    Yes. He gets paid for providing stock price performance insight to institutional investors.

    But what he says on freely available media or a PR is not the same as what he tells his paying clients. Ie, what’s public is typically bullshit, what’s private is actual data, and where he earns his money. I wouldn’t be surprised if what’s told in public and what’s told in private are polar opposites. The real actionable data always requires money.
    edited May 14
  • Reply 7 of 11
    FolioFolio Posts: 368member
    tht said:
    78Bandit said:
    As negative as I usually am regarding the plateau/maturation of the iPhone market, I think there is a reasonable chance Apple may match the 235 million units they sold back in FY 2015 if the rumored LCD devices turn out to be quite decent.

    Despite the outcry among the Apple faithful that the iPhone X is selling well, I don't think there is much argument it isn't selling as well as originally hoped.  This was supposed to be a "supercycle" year driven by people who were putting off upgrading and waiting for the new AMOLED device that would challenge the design of the Galaxy S7/S8.  Anticipations were high for 80 million units of the device to be sold and the drive to new record numbers of phones that would surpass the previous record set back with the introduction of the iPhone 6.  Indications are that didn't happen and the X will wind up selling closer to 40 million units and overall unit sales will be stagnant yet again for FY 2018.
    I don’t think it is much of a difference if Apple sells 215m or 230m units. So, maybe they sell 235m units in their FY2019 year, where there is a both a cheaper LCD variant and large display OLED variant of the iPhone X industrial design, but it is still only about 10% difference from the 215m units they been selling the past 3 years (including the FY18 year that’s half over). 10% is basically year to year variations. Ie, a stable business.

    The so-called supercycle in Apple FY15 was a 36% increase from the FY14. 170m units to 231m units. No one in their right mind is saying Apple can sell 250m to 300m units without a serious change in how they do business if there is another supercycle like in FY15. Apple already is taking the top 10% of the market, with ASPs in the $700 range. They don’t have any customers left to sell to, so I think it will be stable at 220m units with single digit swings in units sales YoY.

    You can argue there isn’t any feature out there to drive the existing customer base to upgrade early and to draw in more non-iPhone users. It wasn’t going to be AMOLED. It’s not going to be Face ID. For FY15, hindsight says it was really having bigger displays that drove units sales, and not much else. Can’t play the bigger display card again and generate another big increase in growth I don’t think. I don’t think folding displays will do it. It’s not going to be better battery life, not VR nor AR, or voice interfaces. I’m seriously contemplating just getting a new battery for my 6S Plus and using it for a fourth year even, as there really isn’t an upcoming feature that is a must have.

    Apple taking the top 10% and maintaining sounds really good from a business point of view though.
    With possibly four new iPhones debuting this year-- from new SE to Plus-sized X-- Apple customers will get unusually high degree of HW choices, including size of screen, OLED, LCD. Even if they pass, and favor buying a new battery for old phone, then they have more $$$ to buy other options: new Watch, wireless charging mat, new AirPod/case, etc. We can breathe easier with the modest bump to iOS 12.  In short, this will be a HW extravaganza year and likely a very good one.
    watto_cobra
  • Reply 8 of 11
    lkrupplkrupp Posts: 6,292member
    Okay, haven’t we learned by now that analysts don’t have a clue when it comes to Apple, good or bad. All they care about is manipulating it up or down to make a buck.
    mattinozwatto_cobra
  • Reply 9 of 11
    slurpyslurpy Posts: 5,029member
    Apple is basically treading water with iPhones and they don't mind coming in third or fourth place while most other companies are swimming at full pace to become the first across the line. That's the main reason why the big investors don't have much interest in Apple. Big investors seem to be mainly interested in backing those companies that are way ahead of the rest of the pack. Apple is doing OK selling iPhones and that's good. However, imagine if Apple updated their full line-up of computers, how much more revenue they'd make. It's as though Apple is only putting effort behind their iPhones and neglecting their other products. Does that even make any sense to most of you?

    Anyway, as an Apple investor, I'm going to be satisfied if Apple can keep iPhone sales stable for years to come. Maybe the best long-term plan is Apple taking the cream and leaving low-fat milk for the rest of the manufacturers. In that time, Apple may actually come out with some new groundbreaking product or services that will add to that iPhone revenue. I trust Apple is playing a long game even if I can't see it. Wall Street seems to be so excited about cloud services and artificial intelligence and Apple doesn't really have anything in that space. Apple isn't interested in data-harvesting either. That's three things that get all of Wall Street's endless praise and Apple is excluded from all of them. Whatever happened to Apple's push in AR? I don't really see anything Apple is doing with it. I guess I expected all these amazing iPhone and iPad apps that took advantage of AR, but where are they.

    Your posts are always so whiny, entitled, and poorly informed. "As an AAPL investor", why the fuck aren't you happy that AAPL is at an all time high, instead of trying to pretend you're not satisfied? Anyone who has been holding AAPL stock, whether it's been for 6 months, a year, 5 years, or 10 years, has done EXTREMELY well. Yes, Apple is playing the long game and they always have.

    You don't see Apple doing anything with AR? What's ARKit then? You think they did it for fun? Clearly they have big plans for AR, and if you didn't have the attention span of a gnat, you'd realize that not everything can happen Day 1. They have the biggest AR platform in the world, which has set the foundation, and they will no doubt have hardware to exploit this in the future, when it makes sense and when the technology exists to deliver a hardware product that is a great experience and not a gimmick. Who gives a shit what wall street "wants"? Wall street has proven not to have a clue, over and over again. And if you think Apple doesn't care about cloud or AI, you always haven't been paying any attention whatsoever. 
  • Reply 10 of 11
    mattinozmattinoz Posts: 889member
    LOL... Rendering or just scaling things.

    If Apple can get the notch as small as it is on the 5Body X, surely they would also make it smaller on all the updated X models?

    Maybe we will see IR camera and dot projector under screen this year. Also if the 5Body X is possible (and I sure hope it is) then I'm pretty sure it'll be eSIM to free up enough room to get the internals to work.

  • Reply 11 of 11
    thttht Posts: 2,815member
    mattinoz said:
    LOL... Rendering or just scaling things.

    If Apple can get the notch as small as it is on the 5Body X, surely they would also make it smaller on all the updated X models?

    Maybe we will see IR camera and dot projector under screen this year. Also if the 5Body X is possible (and I sure hope it is) then I'm pretty sure it'll be eSIM to free up enough room to get the internals to work.

    5Body X”? What’s that?

    OEMs can make an all screen phone today, or even a couple of years ago, but it would mean a periscoping front camera (assuming it is a required feature). But insofar as actually increasing unit sales, not a big driver for that. Phones today are over serving the vast majority of customer needs. Maintaining unit sales will require an all out effort in adding features, increasing build quality and other incremental features.

    Maybe the biggest user features left are robustness (glass breakage), maybe another 30% runtime like 15 hours of typical usage, and the carriers increasing LTE coverage.
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