'SUPER-CYCLE': The evidence that iPhone 7 is going to be massive

The media and the analysts think they have got iPhone 7 all figured out. Because the new device — due in September — is not going to offer dramatic improvements to iPhone 6s, its sales will be modest.

But BMO Capital Markets analyst Tim Long and his team have another theory. iPhone 7 is going to be huge, they say, because when September arrives Apple will have the largest ever installed base of existing iPhones that are more than two years old.

Here are Long’s charts, making that case. This charts breaks down the percentage of people who upgrade their phones into the new model, based on how old their current phone is. Only 17% of “next-gen” users immediately get the new phone. The sweet spot is users with “next-gen+1” phones and older, ie phones that are two years older or more.

82% of iPhone upgraders have phones that are two years old or more:

Here is the current breakdown of all existing iPhone users. The bulk of them are on phones more than two years old:

Here is that data with the older phones represented as a percentage of the whole:

Long recently published data using these estimates for upgraders as a percentage of new iPhone sales. The percentage of users due for a new phone is even larger now than it was for iPhone 6, Apple’s most successful phone:

  • Percentage of installed iPhone base that is 2+ years old
  • iPhone 6 September 2014: 23%
  • iPhone 6s September 2015: 19%
  • iPhone 7 September 2016: 26%

And the same data again, but this time in terms of the total number of phones:

“We believe the set-up into the iPhone 7 is positive, with a current subscriber base of about 650 million, and 26% of the first-hand owner base holding phones that are at least two years old,” Long wrote in a recent note.

Twenty-six per cent of 650 million iPhones is 169 million phones which are two-plus years old. In terms of the portion of those who will then upgrade, “this translates to about 120 million phones. As a result, we believe the device will drive an improved replacement rate even if it has lacklustre features,” Long wrote in May. Since Apple reported its June quarter numbers, his estimate has changed only slightly.

Will he be right? Timothy Arcuri and his team of analysts at Cowen & Co. have made a similar case, that we’re heading into an iPhone 7 “super-cycle” that will dwarf the one we saw for iPhone 6 in 2014.

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