iPhone Unit Sales, and the Most Relevant Metric

Apple surprised everyone when they announced last week that they would no longer be disclosing iPhone unit sales. There is a lot to unpack with this new revelation, and to the chagrin of many of the short view traders, their Apple investing game got a bit more challenging.

What stood out to me the most was Apple’s commentary on their earnings call where they explained their justification of this reporting change and emphasized that THEY don’t believe the reporting of a unit sale of iPhone is the most relevant way to understand the whole Apple story. I completely agree with this point. I do, however, disagree that it is not a pertinent metric as Apple wants to paint it.

The Story Apple Wants to Tell
Throughout the last few years, Apple has worked on getting their investor’s minds wrapped around new stories. Apple has long been battling the short investor mindset vs. the long. Much of their strategy has been to bring more long (value) investors into the picture and try to minimize the number of short investors in volume. Whether that was to chase them away (intentionally take a stock hit), join the DOW, split the stock, etc., Apple seems to take the long view of itself and is ok with some short-term market turmoil. Looking back historically, Apple’s stock always seems to recover.

It seems Apple is in the same place now, as they look to get investors to buy into a new growth story. One that is not as entirely dependent on iPhone sales as it has been the past 7-8 years. The typical investor sentiment has always been Apple is an iPhone company. While short sided, the financials many investors use to make decisions made this sentiment right. But Apple now wants investors to fully understand the big picture that Apple is not an iPhone company but an ecosystem company. This is a story not about iPhone sales, but about iPad, Mac, iPhone, AirPods, Apple Watch, HomePod, services, third-party developers, enterprise software partners, retail, and so much more.

I expect all of Apple’s commentary around earnings to continually highlight the ecosystem story, not just the iPhone story. Apple wants investors to focus on Apple’s ability to grow revenue, not just iPhone sales. I’ve long affirmed this view, and even in talks with investors, I have encouraged a view that looks at Apple’s total revenue growth on an annual basis. Below is that cart since 2007.

In my mind, this chart is one of the more important. Followed by tracking the growth of other categories as a part of Apple’s total revenue mix. For Apple’s story, about not being an iPhone company to work out, then the percentage of revenue iPhone brings in as a part of the revenue mix needs to decrease a bit more, and other categories need to rise. Here is revenue mix, and in particular tracking, the services category will be the most interesting. It is now the second biggest contributor to revenue.

Apple desires to shift focus from iPhone has the most focused on metric and move that to things that tell the ecosystem story. Things like active installed base, growth in subscriptions, services growth holistically, customer loyalty, new customers gained in the quarter for a particular category, and more. These are the things that demonstrate Apple’s ability to hold onto customers, and those customers ability to grow the value of the ecosystem for all the stakeholders.

Ballpark Figures
While Apple won’t release exact unit sales, many folks already have built out models and will easily be able to stay in the ballpark of unit sales. It may be exact, but I strongly doubt they will be horribly off either. What will become a bit more important statistically is to focus on the mix of iPhone model sales. Apple has never disclosed this, and when it comes to iPhone sales going forward, this will be important to get a handle on.

The reason I say mix, is not because of the need to calculate an ASP, but more to understand what percentage of Apple’s installed base is on latest generation technology. This is one of the most relevant things to understand because users who upgrade to Apple’s latest technology platform tend to increase their value to the ecosystem. This is because latest generation hardware allows consumers to take advantage of the latest and greatest the full Apple ecosystem has to offer. And services will remain the single greatest benefactor for growth as Apple customers adopt the most recent technological platform.

With that in mind, many data points I have come across lately, suggest it takes about four years for the bulk of Apple’s customer base to move to the latest platform. Meaning, the step change from the iPhone 5 design, to the iPhone 6/6 Plus design took about four years for ~80% of the iPhone base to be on a model that was iPhone 6 or higher. Using this formula, that means around 2021 ~80% of Apple’s iPhone base will be on the iPhone X technology platform.

For the foreseeable future, iPhone sales will still be a highly relevant part of the story. The iPhone is and will be some time, the center of Apple’s ecosystem story. Essentially, the big grand ecosystem narrative Apple wants to tell does revolve around the iPhone.

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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

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