Did Apple misread the warning signs about the iPhone?
According to an analyst by the name of Neal Cybart, Apple has misread the warning signs about weak sales of the Apple iPhone. Based on charts showing sales using both a 12 and 24-month moving average (which removes short term noise), growth in iPhone sales has been slipping ever since the first quarter of 2012. There was a short-lived rebound that lasted four quarters after iPhone buyers jumped to the larger screens on the Apple iPhone 6 and Apple iPhone 6 Plus. In addition, the world's largest carrier, China Mobile, started offering the phone around that time period.
But as Cybart points out, Apple misread the tea leaves when it came to the Apple iPhone 6s and Apple iPhone 6s Plus. One issue is that 60% of the installed iPhone base as of September 2014, had not upgraded to a larger iPhone by the end of 2015. That, he says, is indicative of a product with a three-year or longer sales cycle, not the two-year cycle Apple plans for.
In addition, the smartphone saturation rate in the U.S. and in other countries is now very high. This leaves fewer featurephone users available to switch to a smartphone in general, and the iPhone specifically. And while Apple has been able to snag switching high-end Android users who were waiting for a large screened iPhone, the tech titan will have to somehow attract those with lower-priced Android models.
Cybart says that Apple needs to scrap the two-year iPhone cycle, concentrate more on features that customers "are craving for," and make Apple more than a company that succeeds or fails depending on the unit growth of the iPhone in any random quarter.
While Apple has been through down periods for the iPhone in the past, never has the majority opinion been so pessimistic on the device. And as many investors will tell you, fading such a strong majority opinion is usually the right thing to do. In other words, with everyone expecting the worst for the iPhone over the next few months, the smart money is expecting something completely out of left field that will drive demand for Apple's smartphone. Which is exactly what Tim Cook said the other day when he said that the next iPhone models will include features that you didn't know that you need today.
source: AboveAvalon via BGR
In addition, the smartphone saturation rate in the U.S. and in other countries is now very high. This leaves fewer featurephone users available to switch to a smartphone in general, and the iPhone specifically. And while Apple has been able to snag switching high-end Android users who were waiting for a large screened iPhone, the tech titan will have to somehow attract those with lower-priced Android models.
The analyst also says that Apple didn't think through the negative effects of the Apple iPhone SE before releasing the 4-inch model in late March. The phone has hurt the iPhone's average selling price and has cannibalized higher priced models. And as we pointed out yesterday, the Apple iPhone 7might not be the savior that Apple thinks it will be.
"Much of the iPhone's current success has been a result of iPhone users regularly upgrading their devices every two years. However, there are signs that this upgrade rate is actually much longer than two years. Over the course of the past year, Cook has provided updates as to the percent of the iPhone installed base as of September 2014 that had upgraded to a larger iPhone (6, 6 Plus, 6s, or 6s Plus). At the end of 2015, 60% of the iPhone installed based as of September 2014 had not upgraded to a larger iPhone. That data point is not representative of an iPhone business on a two-year upgrade cycle. Instead, the iPhone installed base is, at a minimum, on a three-year cycle.
Much more concerning for Apple is that the longer the remaining 60% of the installed base delays an iPhone upgrade, the longer the upgrade cycle is extending. It is not unreasonable for the iPhone installed base to extend out to four or even five years. Not surprisingly, these trends were never accurately captured in consumer survey research reports. This is unchartered territory for Apple."-Neal Cybart, analyst, Above Avalon
Much more concerning for Apple is that the longer the remaining 60% of the installed base delays an iPhone upgrade, the longer the upgrade cycle is extending. It is not unreasonable for the iPhone installed base to extend out to four or even five years. Not surprisingly, these trends were never accurately captured in consumer survey research reports. This is unchartered territory for Apple."-Neal Cybart, analyst, Above Avalon
Cybart says that Apple needs to scrap the two-year iPhone cycle, concentrate more on features that customers "are craving for," and make Apple more than a company that succeeds or fails depending on the unit growth of the iPhone in any random quarter.
source: AboveAvalon via BGR
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