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From “How is the iPhone installed base growing double digits with no unit growth?,” a note sent to clients Tuesday by analyst Wamsi Mohan:

We view the installed base (IB) as a key indicator of the eventual potential of the Apple ecosystem. In our opinion the following points are the most important to consider in evaluating the long term potential for Apple:

(1) Size of the global iPhone IB of about 1 billion units by the end of 2018 (about 750mn primary and 270mn in the used iPhone IB),

(2) Installed base CAGR [compound annual growth rate] over the past 2 years is 15%, primarily driven by strong double-digit growth in the used iPhone IB (2-year CAGR of 61% y/y, albeit off of a small base), while the new iPhone installed base has grown at a mid-single digit CAGR (6% y/y),

(3) Future growth in IB will largely come from the used phone market which can be a detractor to primary phone sales,

(4) A larger installed base can eventually drive higher consumption of services and sales of incremental devices (halo effect),

(5) The elongation of replacement cycles is additive to IB growth but the onus of unit growth will fall on Android switchers and first-time smartphone buyers (primary only), and

(6) Secondary market growth presents a large services opportunity but currently even primary market services attach is relatively low.

We maintain Neutral on risk/reward balance driven by weaker emerging markets and near-term slower Services growth, balanced by large net cash which affords optionality.

Maintains Neutral rating and $220 price target.

My take: The focus on installed base, rather than quarterly unit sales, is useful. That future growth will largely come from used phones, rather than new phones, is a surprise.