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Technology Stocks : Apple Inc. -- Ignore unavailable to you. Want to Upgrade?

To: pyslent who wrote (190432)	5/12/2016 9:23:22 AM
From: pyslent	Respond to of 213177

..Apple is fairly unique in that a large percentage of used iPhones stay in use even when the original owner gets a replacement. If the userbase is at 580m, let's say 100m are people using a hand-me-down or bought a used iPhone. If those people eventually acquire a replacement the same way, they don't register in the traditional upgrade rate calculations. You can see a hint of this in the installed base numbers Apple recently gave. In the March cc, Cook said "If you look at our installed base of iPhone versus 2 years ago, it's increased by 80%." So doing some math, if there are 580m iPhones in use today, there were 322m 2 years ago (an increase of 258m). Meanwhile, Apple sold about 431.6m iPhones in that timespan. Simple subtraction suggests that 177m were upgrade replacements (if the rest went to new customers), meaning a 54% 2 year upgrade rate for the userbase from 2 years ago. This seems low, and I think it's because if an upgrader gives an iPhone to his kid for his first iPhone, the one sale generates both an upgrade and a new user. But this is probably overthinking it. It is sufficient to note that the 580m iphone userbase today represents 12 quarters of trailing sales, while the 322m figure from 2 years ago represents 9 quarters of trailing sales.

To: pyslent who wrote (190432)	5/12/2016 9:51:28 AM
From: slacker711	Respond to of 213177

So while the total iPhone base appears to upgrade at a rate slower than the population (23% per year expected), the smaller pool that buys replacements upgrades at a more reasonable clip (it would be 28% a year if you net out 100m "free loaders."). Of course, that doesn't change the calculation of how many new iPhones Apple will sell. That is still pretty low though when you compare it to the overall developed/developing replacement rates. If you parse it further, the iPhone's installed base skews more towards developed than average and towards the wealthy within those categories as well. Those factors should push the upgrade rate up compared to the average. I think Ben Bajarin recently had a tweet talking about the fact that x% of the installed base is upgrade yearly, y% is 2 years, z% is three years and beyond. I thought that was a useful framework for thinking about replacement rates. Two separate issues are that the x+y portion of the installed base is likely shrinking and that a large portion of the y population bought an iPhone 6. That made this year especially difficult. The y portion of the base with two year old handsets will be larger in FY17, but will they upgrade from the 6 to the 7? The overall age of the iPhone base plus the SE and an extra week in FQ1 2017 are all structural positives for next year. Hopefully, that will be enough to keep iPhone sales at least flat ahead of the big upgrade in the fall of 2017. Slacker