iPhone replacement cycles slowing down to four years, pose threat to services, analyst say...

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in iPhone
One of Apple's greater revenue threats is the increasing likelihood that iPhone owners will hold onto old models rather than spend ever-higher amounts on upgrades, according to a new analyst memo.

iPhone 8


iPhones bought new are most likely to be kept for four years, if not longer, said Bernstein's Toni Sacconaghi. In Apple's fiscal 2019, it's estimated that just 16 percent of the iPhone install base will be replaced in some form, contributing to the analyst's projection of a 19 percent decline in annual sales. By comparison, the 2015 fiscal year saw approximately one third of the install base buy new hardware.

Compounding the issue is that as much as 32 percent of the iPhones in use may be second-hand models, and many of their buyers may simply stay in the used market when they need better specs.

"Current upgrade rates have slowed dramatically and may be lower than investors realize," Sacconaghi wrote in the note seen by Business Insider.

The trend in iPhone sales could slow the growth of Apple's burgeoning services business, he added. The company is doing well in terms of Apple Music and Apple News users, and is venturing into original video, but has traditionally tied services to its hardware platforms. Without more units there may be a cap on how far subscribers will expand, and second-hand buyers are believed to be less likely to spring for extra services.

Apple's services revenue will likely grow only 15 percent in FY2019, Sacconaghi concluded, versus over 20 percent in each of the prior three years.
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Comments

  • Reply 1 of 166
    Could it be that the cellular companies no longer offer a discounted price for the phone?  In the old days I could get a new iPhone every two years for $200.  Now I have to pay full price.  Makes me keep my iPhone longer.  They had to see that coming?   
    curtis hannahbaconstangbluefire1cornchipclaire1
  • Reply 2 of 166
    I know I'm in that boat. I would have considered an upgrade at 3 years if prices were the same, but they aren't so I'm keeping my 6S+. Also with the news that 5g is around the corner in 2020, I might as well wait 5 years assuming it continues to run smooth.
    kitatitflyingdpGeorgeBMacsamian5747propod
  • Reply 3 of 166
    wood1208wood1208 Posts: 1,877member
    4 years replacement cycle sounds unreasonable. People go at most 2 1/2 to 3 years most.
    magman1979
  • Reply 4 of 166
    People upgrading has little impact on subscription services (music, video, iTunes storage, etc).  Old hardware runs everything fine...

    What it does impact is AR, where Apple is stuck in the chicken or the egg scenario.  Apple wants it to be the next “big thing” but there is no “killer app” that makes upgrading attractive.

    The threat is not to services but to hardware sales.

    In app purchases were great for revenue growth, but the easy money is stifling innovation.  The App Store is full of junk and copycats, Apple needs to push innovation apps/games to the forefront.

    Apple probably needs lower the average cost per phone to keep customers from trying Android.  If they don’t services revenue growth will suffer...

    minicoffeekitatitcurtis hannahmattinozbaconstanghzcretrogustoclaire1raybo
  • Reply 5 of 166
    camccamc Posts: 19member
    Not true IMHO. Again, it's the software that sells the hardware, not vice versa. 
    In my family we have four iPhones, many Macs, tv, iPads. Half of them are 4+ years old and we are happy with that.
    We are still spending a lot in services – Music, Movies, software. And we will update our devices as soon as the availability – or the smoothness – of the services will require it. 
    magman1979chasmcurtis hannahbb-15dedgeckowatto_cobra
  • Reply 6 of 166
    wood1208 said:
    4 years replacement cycle sounds unreasonable. People go at most 2 1/2 to 3 years most.
    The thing is, for me at least, there's no compelling reason to upgrade. Yes the screen is nicer, but it has reached the point of diminishing return. Yes the cameras are better, but my almost three year old SE still takes great shots. My SE still runs the latest iOS and gets all the features. I look at the iPhone XS and it is lovely, but I keep asking myself what it would give me that my SE doesn't. So far the hole in my bank account doesn't outweigh the improvements. Until the SE stops working, or at least won't do something I want it to do, I have no compelling reason to upgrade.
    edited February 8 agilealtitudecurtis hannahbaconstangtokyojimudesignrpscooter63muthuk_vanalingammazda 3sGeorgeBMacbb-15
  • Reply 7 of 166
    jaiello said:
    Could it be that the cellular companies no longer offer a discounted price for the phone?  In the old days I could get a new iPhone every two years for $200.  Now I have to pay full price.  Makes me keep my iPhone longer.  They had to see that coming?   
    You never paid $200, you paid full price spread out over 24 months rolled into your plan. You can do the exact same thing now — I put down about 1/3 of my iPhone X and am paying the rest off interest free over 24 months on T-Mobile. It's the exact same thing.
    magman1979genovelleStrangeDaysdisneylandmanbonobobGeorgeBMaclarryjwkiowavtslow n easyDeelron
  • Reply 8 of 166
    jaiello said:
    Could it be that the cellular companies no longer offer a discounted price for the phone?  In the old days I could get a new iPhone every two years for $200.  Now I have to pay full price.  Makes me keep my iPhone longer.  They had to see that coming?   
    You never paid $200, you paid full price spread out over 24 months rolled into your plan. You can do the exact same thing now — I put down about 1/3 of my iPhone X and am paying the rest off interest free over 24 months on T-Mobile. It's the exact same thing.
    Not the same thing in some circumstances. If you upgraded every two years, then yes, but if you did not upgrade you continued to make payments on a phone you had already paid for.
    retrogustobeowulfschmidt
  • Reply 9 of 166
    jaiello said:
    Could it be that the cellular companies no longer offer a discounted price for the phone?  In the old days I could get a new iPhone every two years for $200.  Now I have to pay full price.  Makes me keep my iPhone longer.  They had to see that coming?   
    You never paid $200, you paid full price spread out over 24 months rolled into your plan. You can do the exact same thing now — I put down about 1/3 of my iPhone X and am paying the rest off interest free over 24 months on T-Mobile. It's the exact same thing.
    I believe there were subsidies as well, so even then you weren’t paying the whole amount. In fact for AT&T and Verizon the monthly price is actually higher now when you add the phone payment in. 
    chasmjaiellone1bb-15
  • Reply 10 of 166
    If an analyst believes the “iPhone” of today will resemble an “iPhone” of ten years from now, then they should hand in their resignation. In all likelihood we will be onto something new, in much the same way that the iPhone replaced the iPod. 
    watto_cobra
  • Reply 11 of 166

    DAalseth said:
    wood1208 said:
    4 years replacement cycle sounds unreasonable. People go at most 2 1/2 to 3 years most.
    The thing is, for me at least, there's no compelling reason to upgrade. Yes the screen is nicer, but it has reached the point of diminishing return. Yes the cameras are better, but my almost three year old SE still takes great shots. My SE still runs the latest iOS and gets all the features. I look at the iPhone XS and it is lovely, but I keep asking myself what it would give me that my SE doesn't. So far the hole in my bank account doesn't outweigh the improvements. Until the SE stops working, or at least won't do something I want it to do, I have no compelling reason to upgrade.
    The SE's camera is pretty mediocre compared to what comes in the latest iPhones. OSS is amazing for video on my X. Screen real estate is certainly a big plus for me as well, I can't image having to read stuff on a 5" screen anymore.
    StrangeDayswatto_cobra
  • Reply 12 of 166
    2old4fun said:
    jaiello said:
    Could it be that the cellular companies no longer offer a discounted price for the phone?  In the old days I could get a new iPhone every two years for $200.  Now I have to pay full price.  Makes me keep my iPhone longer.  They had to see that coming?   
    You never paid $200, you paid full price spread out over 24 months rolled into your plan. You can do the exact same thing now — I put down about 1/3 of my iPhone X and am paying the rest off interest free over 24 months on T-Mobile. It's the exact same thing.
    Not the same thing in some circumstances. If you upgraded every two years, then yes, but if you did not upgrade you continued to make payments on a phone you had already paid for.
    Yep. Hence why people would be excited to be eligible to update after 2 years. Anyone paying the same plan after 2 years without upgrading was essentially dumping in extra money.
    StrangeDaysbb-15watto_cobra
  • Reply 13 of 166
    robbyxrobbyx Posts: 474member
    I think he's way off base.  First, we have no idea what future Apple devices will cost.  It's wrong to assume that Apple will continue to price higher.  They may very well lower prices across the board when the new models are released.  We don't know.

    He's also wrong about services.  Whether a customer buys a new or used device, that person is a potential services customer.  The only metric that counts here is the active iOS installed base.  It continues to grow despite the decline in units sold.  Not everyone is buying a new iPhone, but there is clearly a very healthy second-hand market that brings new users (and potential services customers) to Apple, even if they never buy a new iPhone.
    fastasleepbaconstangbb-15raybowatto_cobra
  • Reply 14 of 166
    wood1208 said:
    4 years replacement cycle sounds unreasonable. People go at most 2 1/2 to 3 years most.
    I used to be a 2year upgrader. But Apple prices now have made me choke and hold off the last two years. I was absolutely ready to buy an iPhone X but just can’t stomach the price. OK, here comes the XS, I’ll get that..... what? They raised the price again! Choke again, OK iPhone 11?.... 

    It’s always been a case of you couldn’t give me an Android for free but the thought of switching to Android has actually crossed my mind now. 

    My iPhone 6 is looking like a 5year upgrade cycle. 
    tokyojimudesignrhucom2000
  • Reply 15 of 166
    k2kwk2kw Posts: 1,699member
    jaiello said:
    Could it be that the cellular companies no longer offer a discounted price for the phone?  In the old days I could get a new iPhone every two years for $200.  Now I have to pay full price.  Makes me keep my iPhone longer.  They had to see that coming?   
    You never paid $200, you paid full price spread out over 24 months rolled into your plan. You can do the exact same thing now — I put down about 1/3 of my iPhone X and am paying the rest off interest free over 24 months on T-Mobile. It's the exact same thing.
    The difference is that back then most everyone was going from a flip phone or no cell phone to this new magical thing called an iPhone.   If you have a iPhone 7 or 8 generation the improvements in the X generations are less compelling to savy shoppers on a budget.
    raybo
  • Reply 16 of 166

    genovelle said:
    jaiello said:
    Could it be that the cellular companies no longer offer a discounted price for the phone?  In the old days I could get a new iPhone every two years for $200.  Now I have to pay full price.  Makes me keep my iPhone longer.  They had to see that coming?   
    You never paid $200, you paid full price spread out over 24 months rolled into your plan. You can do the exact same thing now — I put down about 1/3 of my iPhone X and am paying the rest off interest free over 24 months on T-Mobile. It's the exact same thing.
    I believe there were subsidies as well, so even then you weren’t paying the whole amount. In fact for AT&T and Verizon the monthly price is actually higher now when you add the phone payment in. 
    Just because you believe something doesn't make it true. AT&T is and has always been a ripoff, and Verizon's not far behind them though definitely more reasonable. They might call it different names now, but they were still sucking the full cost of the phone out of you over 2 years.

    I'm more than happy with my $60/mo plan plus the $30/mo extra I pay for the phone, which I can clearly see how many payments I have left until I'm just paying the plan. Buying phones outright on this type of plan is a far better deal than the trade-in/upgrade programs or the opaque "subsidized" plans of years past.
    StrangeDayskiowavtwatto_cobra
  • Reply 17 of 166
    mcdavemcdave Posts: 1,114member
    Apple tie services to hardware making sure old machines aren’t  supported with new services/features/document compatibility. We’ve all fallen foul of this at some point (even MS support their document formats on older hardware).

    They’ve been pinged for doing this with iOS (sub-optimal on older devices) and have retracted with iOS12 so I guess they’ll continue to force upgrades with reduced service functionality on older hardware.
    kudu
  • Reply 18 of 166
    I've said before, this is why the cost of devices is going up significantly.  Apple is not stupid.  With users extending their upgrade cycles, they will find a way to keep revenues up (i.e. service offerings, subscription schemes, or higher device prices).
    watto_cobra
  • Reply 19 of 166
    robbyxrobbyx Posts: 474member
    wood1208 said:
    4 years replacement cycle sounds unreasonable. People go at most 2 1/2 to 3 years most.
    I don't think it's unreasonable.  With iOS 12 especially, older hardware is performing very well.  What drives most people to upgrade, in my opinion, is when the overall user experience diminishes to the point that the device becomes unpleasant to use, ie: too slow.  I honestly can't tell the difference in performance between the day I bought my 7 Plus (when it was just released) and today.  In terms of performance, I have no incentive to upgrade.  I'd like a smaller phone without sacrificing screen size, but that isn't reason enough to upgrade.  I'd also like Face ID because I'm sick of how often Touch ID fails.  If anything, that's my biggest pain point and FaceID is the only real lure to upgrade for me.
    edited February 8 designrGeorgeBMacAdamThomasbeowulfschmidt
  • Reply 20 of 166
    k2kw said:
    jaiello said:
    Could it be that the cellular companies no longer offer a discounted price for the phone?  In the old days I could get a new iPhone every two years for $200.  Now I have to pay full price.  Makes me keep my iPhone longer.  They had to see that coming?   
    You never paid $200, you paid full price spread out over 24 months rolled into your plan. You can do the exact same thing now — I put down about 1/3 of my iPhone X and am paying the rest off interest free over 24 months on T-Mobile. It's the exact same thing.
    The difference is that back then most everyone was going from a flip phone or no cell phone to this new magical thing called an iPhone.   If you have a iPhone 7 or 8 generation the improvements in the X generations are less compelling to savy shoppers on a budget.
    That has nothing to do with what I wrote. Most people have no reason to jump from an 8 already, remember those came out last year simultaneously with the X. 7s are still solid iPhones. Most people I know upgrade when their shit breaks and they don't bother repairing it, they lose it or it's stolen, or wait until it's simply too slow for current software etc. My 6 was literally falling apart when I bought my X.
    longpathmuthuk_vanalingamwatto_cobra
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