Apple admitted earlier this year that, for the first time ever, iPhone sales went into decline. Most analysts are expecting iPhone sales to be down for the entire rest of the year. And some have started speculating that upcoming sales of iPhone 7 might be modest because it does not look like the new phone will be radically different from iPhone 6s.
But according to a note to investors from BMO Capital Markets analyst Tim Long and his team, iPhone 7 is actually sitting in front of a massive incoming wave of untapped sales.
Why? Apple has the largest base of existing users it has ever had, and those whose phones are at least two years old form the largest percentage of those users in years. Twenty-five per cent of the “installed user base” is poised for an upgrade, Long believes — an audience of 120 million phones.
BMO’s Long went back through the history of all iPhone sales and calculated that on average, 17% of users upgrade as soon as the next year’s model comes out; 58% upgrade a year after that; and 22% the year after that. Only 2% of users hang on longer.
The iPhone 7, however, will launch into a tidal swell of older iPhone users that will be much bigger than the one that bouyed iPhone 6 to record sales. Here’s the stat:
Percentage of existing iPhone users with devices that are two years old or more, at launch:
- iPhone 6 (September 2014) 23%
- iPhone 6S (September 2015) 19%
- iPhone 7 (September 2016) over 25%
“Moreover, on an absolute basis, we expect the highest-ever aged iPhone base at the time of the 7’s release, at about 120 million units.” This chart shows what that wave of imminently replaceable iPhones looks like:
The icing on the cake comes from this supporting factoid from Wells Fargo analyst Maynard Um and his team:
Citing suppliers in China, several media outlets (Economic Daily News) reported Apple has asked its suppliers to prepare for iPhone 7 units in the 72-78MM range for 2016, which is reportedly the highest in two years. If we assume 15MM are slated for the September quarter, this implies around 57-63MM in the December quarter. And assuming iPhone 7 will conservatively account for 75% of the mix in the quarter, this would imply total units of around 80MM at the mid-point (vs our 82.2MM forecast and above Consensus of 74MM).
Historically, Apple’s orders to its suppliers have been good guides to the general direction of Apple’s expectation for iPhone sales. As you can see from this chart of historic iPhone sales from Statista, anything over 75 million would be a new record — and Wells Fargo’s analysis says Apple is on course for that: