Apple’s Replacement Opportunity is Far From Over
Nearly one-third of both US and urban Chinese iPhone users still own models that are at least two years old.
The iPhone 6 and the iPhone 6 Plus have so far combined to make up 24% of all iPhones in use in both the US and China, Apple’s two most important markets. These numbers only confirm how strong the demand for these two products has been. When we look at how their predecessors fared, though, we see that the iPhone 5s and 5c performed in a similarly robust way in the US, but not in China. In the US, the iPhone 5s and 5c reached 29% market share over the same period of time in 2014. But in China, the strong market preference for larger-screen devices is made clear by the fact that the iPhone 5s and iPhone 5c together reached just 12% of the installed base over the same time period.
Because of the strong demand for the iPhone 6 and 6 Plus, several industry and financial observers have painted a somewhat gloomy picture for Apple’s opportunity in 2016. Once we dig into the numbers, however, the future looks far less bleak. Let’s take a look at these two most critical markets for Apple –the US and China – in more detail.
The average US smartphone user keeps their device for about 22 months before replacing it with a newer model. The longest replacement cycles belong to Blackberry (32 months), while the shortest belong to Nokia/Microsoft Lumia (16 months). Apple’s average replacement cycle is 25 months.
Since September 2014, 32% of US iPhone owners have replaced their devices. Among those users, 47% replaced their phones with an iPhone 6, and 16% with a 6 Plus. In comparing the similar period one year ago, from September 2013 to July 2014, we see that only 22% of iPhone users upgraded their devices. Of those who did, 44% upgraded to the 5s, and 17% to the 5c.
This data suggests Apple has ample opportunity for upgrades in 4Q15 and 2016. As in the previous year, upgrades will come not only from the new iPhone models, but from the current iPhone 6 and 6 Plus, which should experience the drop in price we have seen in previous years for retiring flagship devices. In the US, 32% of iPhone 5s sales were generated after the launch of the iPhone 6 and, in the three months ending in July 2015, the iPhone 5s was still the fourth best-selling smartphone in the US.
The average lifespan of a smartphone in urban China is a little shorter than in the US, about 20 months. The longest replacement cycles belong to Nokia (39 months) and the shortest to Xiaomi (12 months). Apple’s average replacement cycle in urban China is 19 months.
Since September 2014, 18% of iPhone owners in urban China upgraded their devices. Among all the iPhone upgrades, 29% switched to the iPhone 6, and 24% to iPhone 6 Plus. If we compare these numbers to the period of September 2013 to July 2014, we see that only 12% of users upgraded their iPhones. Of those who did, 32% acquired an iPhone 5s, and 5% acquired an iPhone 5c.
As mentioned above, it is evident that screen size has far greater influence on smartphone purchasing decisions in China than in the US. We expect the success of the iPhone 6 and 6 Plus to not only continue, but to accelerate as prices drop. For reference, it is interesting to note that 36% of total iPhone 5s sales in urban China were made after September 2014.
With 31% of existing US iPhone users and 32% of urban Chinese users acquiring their devices more than 24 months ago, Apple’s iPhone replacement opportunity is certainly in no immediate danger.
The iPhone 6 and the iPhone 6 Plus have so far combined to make up 24% of all iPhones in use in both the US and China.