Neil Cybart also says that he doesn’t believe Apple has yet hit peak iPhone sales, despite the company’s decision to cease reporting the numbers…
Cybart made his case in an Above Avalon blog post.
A billion people now have iPhones. According to my estimate, Apple passed the billion iPhone users milestone last month. Thirteen years after going on sale, the iPhone remains the perennial most popular and best-selling smartphone.
There had been speculation that Apple’s 2018 decision to stop reporting unit sales was because iPhone sales had peaked. Cybart says that it’s true that sales were declining at the time, but he says Apple likely made the decision because the market was misunderstanding the impact of longer upgrade cycles.
On its own, unit sales don’t tell us the full story about the iPhone business. This is the primary reason behind Apple’s decision in late 2018 to stop providing unit sales data on a quarterly basis. Wall Street was incorrectly using unit sales as a crutch for shoddy analysis.
Flat to down iPhone unit sales do not automatically mean iPhone business fundamentals have deteriorated. Instead, a longer upgrade cycle can be a leading factor behind declining unit sales. In addition, unit sales don’t say anything about customer loyalty and satisfaction rates, which are crucial when it comes to a customer’s decision to continue using a product.
Cybart argues that Wall Street has been too interested in those switching from Android to iPhone, whereas they are actually a relatively small slice of the pie.
The iPhone business has turned into an upgrading business. While Apple is still bringing in 20M to 30M new iPhone users each year, the percentage of overall iPhone sales going to new users has steadily declined. For FY2020, iPhone sales to new users will likely have accounted for less than 20% of overall iPhone sales – an all-time low.
If you want to understand Apple’s fundamentals, he suggests, you need to look at the installed base. He calculates this by estimating those who bought new iPhones with those who bought used ones — or were handed down phones from family and friends. His model matches Apple’s 2019 statement that there were 900M iPhones in use at the beginning of the financial year, and extrapolating from there gives us more than a billion devices now.
PED30’s Philip Elmer-DeWitt says that Cybart has proven the value of his model by consistently providing the best predictions of Apple’s quarterly earnings:
My take: Cybart, a multiple Apple Earnings Smackdown winner, maintains one of the best Apple models.
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