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