Right after Apple released their record breaking iPhone sales number for the last quarter, Wall Street analysts were wringing their hands over the future growth of the iPhone. They reasoned that Apple can’t continue to break sales records continually and some even suggested iPhone sales have peaked. I am as pragmatic as the next guy when it comes to forecasting iPhone growth but our research continues to show Apple will still have a serious upside in iPhone growth with the iPhone 6 models well through this year and very likely into next year, too.
After the first of the year and well before Apple’s calendar Q4 earnings report, we predicted Apple sold 72.5 million iPhones in that quarter even though the highest Wall Street estimate was around 69 million. Apple sold 74 million during the holiday quarter. Our predictions for iPhone sales for the first calendar year quarter was 61 million even though the highest Wall Street estimate was 58.5 million. Apple sold 61.2 million last quarter. Our bullishness on these predictions come from following Apple for three decades and my own personal mantra that says, never underestimate Apple’s ability to surprise. Also, we have very good ties to the supply chain and, if you have followed our iPhone predictions for each quarter over the last few years, you will find our iPhones predictions are pretty consistent with what Apple actually ships.
There are three key reasons I am still optimistic about iPhone growth over this period and well into 2017-2018. The first lies in the fact Apple execs have stated that less than 20% of iPhone users have upgraded to the iPhone 6. Part of that is related to smartphone upgrade cycles that take place every two years, especially in the US. However, Apple is adding millions of new users to the iPhone fold each quarter and, given their rich app and services ecosystem, the iPhone will continue to be of great interest to people all over the world. There is another key issue that bodes well for Apple, too. Apple is now selling more iPhones in China than in the US and, by 2017, China will could be the most profitable region for Apple smartphone sales as well as iPads, Macs and Apple Watches. In China there is a rising middle class that loves Apple. Apple products are status symbols in the country and this demographic will drive sales of Apple products sky high in the next few years. There is a very good book about the China middle class that is a must read if you want to grasp the growth potential of Apple in China. It is called “China’s Super Consumers” (Amazon affiliate link) by Savio Chan and Michael Zakkour. The book looks at one billion new consumers in China and especially the buying habits of the rising middle class. More importantly, the authors describe how Apple has gone after this market and why they are poised for even more success in the country going forward. It is too myopic to judge Apple’s iPhone sales through a US-only prism. Apple is an international company and much of its future growth will come from international markets that are barely tapped by Apple at this time.
The second reason is due to what Apple calls switchers. During the recent analysts call, Apple CEO Tim Cook stated, at least five times, that demand for iPhones by those switching from other smartphone platforms are very strong. This is not a trivial fact. Our own research shows Apple is luring millions of Android smartphone users over to the iPhone and iOS and we have no reason to believe this will not continue for the near future. Many Android smartphone buyers opted for Android phones because of their larger screens and that was a strong driver for Samsung and others who made phones with 5” for 5.5” screens. However, our research showed that, if had Apple had iPhones with larger screens, 40% of them would have preferred buying an iPhone over an Android smartphone. Consequently, pent up demand by switchers has been key to Apple’s iPhone growth. As Android users move out of their two year contracts, more and more of them will migrate to the iPhone platform. I see switchers continuing to help drive strong iPhone sales at least through early 2016.
The third reason goes under my “never underestimate Apple” mantra. It is crazy to think Apple will not continue to innovate around the iPhone. Just making a larger screen iPhone is nice but that was not innovation. What was innovative is the power of their new mobile processors, great screens, dual authentification security and an evolving ecosystem that makes the iPhone a great smartphone. I realize Wall Street analysts have short term views on purpose and have a hard time with long range views. However, as an industry analyst, it is imperative we look beyond each quarter and look at the things Apple might do to make the iPhone even better, which translates into strong iPhone sales. I believe Apple will continue to evolve the current iPhone design through 2015 and the new iPhone they deliver later this fall will have a faster processor, better camera, higher security and some new and innovative touch features such as the tap and gesture engine that is on the Apple Watch today. However, I believe the next major advance in iPhone design that will drive huge refresh rates will come with the iPhone 8 that should debut in the fall of 2016. While this is pure speculation on my part, I can see how an iPhone 8 could be where Apple introduces things like an iris scan for enhanced security and a 3D camera that uses lasers so you can point it at anything and get its dimensions. It could even be used to take a picture of something to be printed out on a 3D printer.
I recently wrote about an Apple patent regarding this 3D camera and I believe we could see this in the iPhone 8. Apple has also patented a smart pen and, while it seems targeted at the iPad, it could be used on a new iPhone with special sensors built in to give even more functionality to their smartphone.
Who knows what other tech innovations are in Apple’s labs today that could make an iPhone 8 even more compelling than a larger screen iPhone that has driven Apple’s iPhones sales into record numbers since it was launched last September? I also think Apple is not done with wearables connected to the iPhone. Tim Cook says there are things in the labs nobody has even written about and I would not be surprised if they have another wearable up their sleeves tied to the iPhone by late 2017.
In the short term, Apple could hit a snag or two with iPhone growth since breaking sales records consistently each quarter is be difficult. However, to think Apple has hit saturation in iPhone demand is premature. And, given their ability to innovate and with an international audience, it represents strong iPhone growth potential. Apple never rests on its laurels and you can bet they will not stand still when it comes to making the iPhone even better and drive greater demand in the future.
10 thoughts on “Apple’s iPhone Growth Opportunities”
I believe Apple Pay today is hugely important as it is by far the most convenient instore and inapp payment system.
Critical Apple Pay Question: Are its methods strongly patent protected? Can a competitor legally duplicate the customer experience? Here’s my checklist:
Fingerprint Security – I believe Samsung is already matching it using another method.
Secure Enclave – I believe the hw underpinnings are unprotected as they are a non-exclusively licensed part of ARM IP.
Tokenization – I believe Apple licenses this non-exclusively; perhaps it is an open standard. Apple may have a sw patent on its implementation.
(Future) InDisplay Fingerprint Security – Apple has a patent on a method.
My assessment is Apple Pay UX is not protected and a competitor (e,g, Samsung) will be able to match it very closely within a year or two.
Please weigh in with your thoughts.
As I understand it, the way Apple deploys this with the banks, which uses tokens, is unique to Apple at the moment. Samsungs approach does not use tokens as of now.
I have tried to find if it can be licensed but cannot get a straight answer from the experts. I do expect competition to Apple Pay but as Apple grows the iPhone market they will be the one that has the largest influence on mobile payments and I suspect that they have other things in the works that will keep them ahead of the competition.
Fingerprint security: was done on a Android handset before the iPhone.
Secure Enclave: indeed, old concept from Intel and ARM at least
Tokenization: many authentification schemes are token-based. http://en.wikipedia.org/wiki/Software_token
I’m not aware of any part of Apple pay that is either original or patentable. Or innovative, actually, though the overall package is particularly well made.
“Fingerprint security: was done [poorly] on a Android handset before the iPhone.”
Samsung –sliding– FP Security: Unused in S5 and Replaced in the// S6
Samsung’s Apple innovated –press– FP security: Shipped 18 months after Apple in the S6.
“I’m not aware of any part of *Wolfgang Puck’s famous House Smoked Salmon Pizza* that is either original or patentable. Or innovative, actually, though the overall *meal* is particularly *delicious*.”
It must be galling to you how Apple actually does “re-invent the wheel” in many cases. Sometimes it’s a case of taking the first 23-sided polygon “wheel” and thinking that, actually, a circle might work better. Sometimes it’s a case of foregoing the fixed axle everyone uses and coming up with independently suspended axles.
Of course the “wheel” isn’t either original or patentable. But new hubs, bearings, couplings, springs, brake discs, etc. may be original, patentable and innovative. So, it’s a little more than a case of “overall the package is a particularly well made” (though thanks for that concession). It’s more like: well analyzed, well re-thought, well designed, well applied and well made — component by component.
You are like many, in that you continually object to the broad concept of the “wheel” having been around for a long time; but can’t seem to bear that while everyone else uses and re-shuffles off-the-shelf-parts, Apple rethinks many of them from the ground up for mostly its own use. It’s a form of differentiation, and most of the time its a better method of differentiation than just slapping an extra layer of malware on a home screen or something as equally tawdry and forgettable as that.
That’s not the issue though, the guy thought Apple had invented the whole idea of touch ID, not just a variant of something pre-existing. That’s galling, because tweaking and inventing *are* different. Both are valuable of course, but confusing the two is, to me, the same as the guys who can’t make the difference between lock-in and customer satisfaction.
The Chinese consumer, exhibiting the well worn pattern of the rapidly globalizing newly affluent, is the most brand and status-conscious consumer in the world today. They’re like the Japanese in the 80s. Apple doesn’t need to reach downmarket to grow China sales, the customers will come to them as personal incomes rise. Classic case of skating to where the puck is going to be.
The available market for iPhone is anyone that can (or almost) afford one, and android will build awareness of the usefulness of pocket computing and help drive them there. The recent sales figures must make it obvious, but it’s been happening from the start. Those who couldn’t tell the difference and accidentally bought android because of “recommendation” by salesmen or “friends”, or simply the apparent price, eventually seem to work it out.
Let me be first to go a step further and predict that the Apple Watch also has avenues to grow that nobody is talking about yet.
Once a lot of people get used to wearing smart watches and seeing others use smart watches, there will eventually be demand for bigger screens on the wrist.
The only two things holding that back are (1) raising peoples familiarity, dependency and expectations of what can happen on a wrist and (2) solving the aesthetics. But getting people used to the idea that wrists are for computers will help with the latter.
Now think of Enterprise needs and suddenly there are a million applications for having larger screens on wrists so workers with physical jobs (shipping packages, serving coffee, ….) can avoid having to pull phones out of their pockets but still see and control a reasonable amount of on-screen info.
This is exactly the same as happened with iPhones. Apple designed the phone with the best size for a “phone”. Then people got used to having computers in their pockets and demanded sizes that have absolutely nothing to do with being a good phone.
I for one, am ready for my 2″ (or 2″x3″?) Apple Watch but expect they won’t appear for another four to five years.