Apple’s Growing User Base

One major thing stood out to me as I listened to Apple’s earnings report and earnings conference call on Monday. Apple is continuing to grow their base of users against all odds and this question will remain central for many: “Can Apple continue to see record growth quarter after quarter?”

There seems to be little question it will happen for a little while but, as the narrative goes, Apple will run out of new customers and the company will just be selling products to existing customers. Personally, I land here every now and then. After all, there are only so many people on the planet who can afford a $700 smartphone. Yet Apple’s base does continue to grow and, given how very few come into the Apple ecosystem only to leave at some point, this is a key storyline to track.

Several points stood out to me to indicate headroom for Apple to continue to grow.

  1. Android Switching. Apple made a point to call out Android switching as a key quarterly item of interest. Tim Cook stated:

    “We’re seeing a higher rate of people switching to iPhone than we’ve experienced in previous cycles…”

    I have survey data from China in Q4 that asked those who bought an iPhone what device they replaced. 26% said they replaced an Android phone. That was higher than any other response, including other versions of iPhones. Globally, the same survey data indicated 16% of iPhone buyers switched from an Android phone.

    Interestingly, there is also strong data suggesting that the iPhone gained share in the US as a percentage of quarterly upgrades. While over 30% of buyers in Q4 indicated they upgraded early, there was still some expectation that holiday quarter demand would trend into Q1. However, both AT&T and Verizon posted weaker upgrade figures than expected. Both were essentially flat YoY. This could have meant that the US would be weak in quarterly numbers and jeopardize iPhone sales getting to the 60m mark. With Apple hitting 61m iPhones in the quarter, it suggests that, not only was iPhone growth huge outside of the US, but that Apple also likely took the vast majority of share in US upgrades.

  2. First Time Buyers. While I can’t imagine this was a huge percentage of quarterly iPhones, Tim Cook mentioned that some iPhones were sold to first time buyers. From survey data, I saw that 5% of iPhone buyers in Q4 2014 were buying their first smartphone. Even if this number is 2-4m, it is a significant data point. Apple still has some opportunity with the ~10 of US mobile subscribers who don’t yet have a smartphone. A similar story exists in parts of Europe. Other markets may be tougher to get first time buyers, given most of the new user growth will come from the low end of the smartphone market.


Another key part of Apple’s big picture narrative is China. I made mention of the China Android switching statistic but Tim Cook also said Apple seems to be getting out of just the high end and into the mid-tier in China as well. To give you a picture of the iPhones in use in China, I’ve updated my usage data from Baidu, but added two changes for perspective.

With the 5s and 5c, and iPhone 6 and 6 Plus, Apple has been releasing two current generation phones. So rather than break each out in this China data, I added the iPhone 5s and 5c together and 6 and 6 Plus together. I did this to show how the narrative that Apple needed a lower-cost smartphone to penetrate China played out. In fact, they launched a more expensive iPhone and saw a greater trajectory in China.

Screen Shot 2015-04-27 at 10.33.21 PM

As you can see, not a lower cost iPhone but a more expensive one is yielding unprecedented trajectory for iPhones in China.

To cap this point off, Apple sold more iPhones in China than in the US for the first time. I thought this may happen in Q4 2014 and it was quite close but, on the back of the Chinese New Year, we modeled this to happen in the March quarter with near certainty. Here is the chart from my model on iPhone sales by volume in China and the US.

Screen Shot 2015-04-27 at 10.37.34 PM

China continues to be a growth area for Apple. They are gaining switchers from Android and trending along with the rising middle class. There are ~100m iPhones in use in China and ~500m Android phones. As the size of the Chinese middle class trends upwards, so will Apple’s upside as more consumers in the 500m Android user base grow in economic status and aspire to the iPhone.

These are some of the key points of Apple’s continued momentum in 2015. Tim Cook also highlighted that only 20% of the iPhone installed base has upgraded to iPhone 6 and 6 Plus. Interestingly, he gave a “low teens” number last earnings call. Many of us assumed 13% is low teens. So this quarter, only 7% of the base upgraded. There is a great deal to unpack with this statistic in the future but the larger point is a large percentage of the iPhone base is still poised to upgrade. This number, combined with new user growth via first time smartphone owners and Android switchers, makes the core global bull case for Apple in 2015.

We still need to dive into iPad’s struggles, the iPhone’s prospects in other emerging markets, Macs growing in China, and Apple Watch data over the next quarter. Stay tuned.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

17 thoughts on “Apple’s Growing User Base”

  1. Thanks for the informative update. Do you have an updated installed base number for iPhone (or iOS)? Has it gone over 500m?

    1. No my estimates put it at around 430-440m. Other wall st funds I read have it low 400 and Morgan Stanley has it at 425. Pretty sure most of them use my numbers back in Dec since I know none of them had installed base estimates until I published mine then I saw them everywhere. Oh well 😉

  2. Selling a higher priced iphone instead of a lower priced iphone seems like classic skating to where the puck is. Yes, many people buying cheaper phones. But, every day X number of more people reach an income level that equates with ability to buy iPhone. And X is a large number. Anecdotally, when I was in Beijing recently i was struck by the number of not wealthy people with current model iPhones. These were people doing jobs that I estimate pay $5-$10k/year.

      1. Certainly. But, point is that spending $600 for an iphone is still a big percentage of that middle class income, even if other costs are less than in more developed economies.

  3. Slight criticism with using surveys to back the switching argument. Just for diligence, would be useful to include data on % that switched the other way (though I can’t imagine that changing the story at all).

    I do see one potential vulnerability with the 20% upgrade number. There’s one scenario where a huge portion of iPhone users have behaviorally adjusted to the smaller screen size and that segmentation has cemented. If that’s the case, Apple will need to sustain a product portfolio with three sizes, not two.

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