There has been a lot of talk that the iPhone has peaked and that it will not see any significant new growth. Although iPhone growth has slowed, I am not quite ready to say Apple’s iPhone sales have actually peaked and there will not be new users who will be attracted to the iPhone platform.
In fact, as we do more research into the iPhone market and its longer-term growth potential, we see four significant wild cards out there that could help drive iPhones sales exponentially over the next three to four years.
The first one is something Tim Cook mentioned in the earnings call and is related to Apple’s interest in India. Last year, Apple sold about 800K iPhones in India in Q4 2015 but, according to our research partner in India, Apple’s brand is huge in that country and the iPhone is one of the top aspirational smartphones on many people’s wish list. Of course today, the iPhone is priced well out of reach of the broad market and only people in the upper earnings bracket can afford an iPhone. Yet, smartphone growth in India is at an all time high and mobile apps are driving all types of commerce and social connections.
A new study by InMobi and Tune analyzed the biggest mobile usage trends in India for 2015 and found shopping is the most popular type of app in the country.
The study further showed:
– App installs grew 129% over their level in 2014, signaling strong mobile growth. India currently accounts for 9% of the world’s app downloads.
– Shopping apps were the most popular app category in 2015, accounting for 25% of total installs.
– Entertainment, games, and lifestyle apps captured relatively similar shares of installs, accounting for 16%, 15%, and 12%, respectively.
– Travel and communication/social apps were the fastest-growing app categories in 2015; installs were up 474% and 163%, respectively. Travel apps benefited from heightened competition between app-based cab services while communication and social apps were helped along by strong growth in the mobile messaging app market.
Finally, India actually leads the world in installs driven by app advertising even though mobile app advertising is still relatively new to the country. Almost 25% of all installs within the country were driven by paid ads.
While interest in mobile devices is growing, Apple would likely need to create a dedicated iPhone for this market if they want to see any serious growth. We expect Apple to double their iPhone sales in India in 2016 but even with that, this is a very small number of the smartphones sold into this market.
But Cook’s stated interest in India is pretty high and Apple could surprise us by targeting this specific market differently than others. Possibly by doing a unique, high-quality iPhone just for India but at a mid-range price more acceptable for a larger group of smartphone buyers who would like the cachet of an iPhone but can’t afford the iPhone as it is priced today.
I realize this would be out of Apple’s traditional game plan but that game plan probably will not work in India given the iPhone’s premium pricing. We are watching Apple’s moves towards India closely since this wild card could be quite important to future iPhone growth if Apple can find a way to get a model that is acceptable and at the right price points for this market in the next three years.
The second wild card is Apple’s new program that allows people to upgrade their iPhones yearly. The first cycle of users that can take full advantage of this program will kick in when the new iPhone 7s hit the market later this year. We are projecting as many as 25% of Apple’s current iPhone users could use this program and, if so, it could help them grow the iPhone market substantially in 2017.
The third wild card is a new iPhone 7 itself. Rumors suggest Apple will have a significant new design with much better cameras and audio and, given their iPhone launch cycles, every other year brings a new model that breaks new ground and causes solid upgrades. In the earnings call, Cook said that only 40% of iPhone users have even upgraded to the 6S and 6S+ models and that there is still a lot of room to grow just within this audience. Add more switchers from the Android crowd and 2017 could see more solid growth for the iPhone.
And the fourth wild card may be out there a bit but Apple creating their own VR solution could help them spur new iPhone growth and expand their overall ecosystem of products and services. Apple has been mum on this but rumors say they have hired some top VR talent and VR is said to be getting a high priority inside Apple these days. Apple has to look at this seriously since Samsung is using the Gear VR to help sell more Samsung 6 series smartphones and Google is said to be working on their own similar VR headset for use with all Android phones by this summer. We are also hearing that Google will make creating content for VR on Android a big part of their software developer conference in May. While Apple’s MO is to sit back and let this market develop and then jump in, this time they may need to move faster as using a smartphone to power a VR experience will drive VR into the mainstream sooner than later.
BTW, we can’t discount new growth in China either. The Motley Fool’s Daniel Sparks argues there is still a lot of opportunity for Apple in China.
The significance of Apple’s Greater China market
During Apple’s first fiscal quarter of 2016, one market stood out as the tech giant’s fastest-growing market by far: Greater China. Particularly intriguing about this market is not only is it Apple’s fastest-growing, it’s also now its second largest market.
Apple CEO Tim Cook shared a few more reasons to be optimistic about this market during the company’s most recent earnings call:
– iPhone sales in Greater China during Q1 were higher than ever
– App Store sales in the market were also at a record high
– iPhone sales in Mainland China were up 18% compared to the year-ago quarter
– Mac sales in Mainland China were up 27%, year over year
– Almost half of iPhones sold in Mainland China during Q1 were to first-time buyers
Going forward, Cook cited low LTE penetration and a growing middle class as potential catalysts for growth over the long haul.
When looking at future iPhone sales and the potential growth of the iPhone, I believe one has to factor in these wild cards and their potential to help Apple continue to grow demand. I just don’t think the market for the iPhone has dried up. There is still room for Apple to grow this market if they continue to innovate and make more targeted bets on countries like India.