Photo: Morgan Stanley
Apple’s stock peaked around April 9 and has been slipping ever since, with a one-day exception when it jumped thanks to blow-out earnings.What happened on April 9 to start hammering the stock? BTIG analyst Walter Piecyk put out a report saying Apple’s iPhone sales were going to be weaker than expected this quarter, and carriers were changing their subsidy policies. The main change was that you couldn’t upgrade to a new phone without penalty as often as you used to.
This morning, Katy Huberty of Morgan Stanley put out a 15-page report on Apple and carrier subsidies and seems to conclude that this issue is largely a non-issue.
Here are the key points:
- Apple has sold a lot of iPhone 4Ss despite longer upgrade policies from AT&T*. AT&T lengthened the upgrade policy to 20 months for the iPhone 4S, as compared to 18 months for the iPhone 4 and iPhone 3GS. Apple still sold a record number of iPhones on AT&T and grabbed a greater share of the AT&T smartphone market.
- Every three month lengthening of the upgrade cycle costs Apple 3.5 million iPhone sales worldwide. At an average selling price of $600, that means it’s losing out on $2 billion in revenue. However, it’s not like that money is lost forever, and it’s not like they’re going to jump to Android. It just means purchases are delayed.
- Apple offsets the loss of 3.5 million sales by adding new carriers and new customers. There are more people around the world without smartphones, than with smartphones. Apple is still attacking that market, not getting its current customers to upgrade.
- China. Following on that last point, let’s not forget that Apple’s biggest opportunity is China, where it is just starting to sell the iPhone, and upgrade cycle policies aren’t as relevant.
Even if every carrier lengthens the upgrade cycle, Huberty says Apple can still sell 165 million iPhones this year, which is what she’s estimating.