“However, an iPhone that is not upgraded this year, is an iPhone that might be upgraded next year.”
From “Visualizing Longer Smartphone Replacement Cycles” by friend-of-the-blog Turley Muller, who does the math two ways:
The frequency at which smartphone users purchase new models has been slowing for many years now, but the impact has been less apparent. Sales to new users masks the declining sales to current users… When the market becomes saturated and sales demand is dependent on current users, any slowdown in upgrades surfaces to the forefront.
The 4 major US wireless carriers report the percentage of their subscriber base that upgrades their device in that quarter, and the sum of those 4 quarters equals the annual upgrade rate. A 50% annual upgrade rate implies replacement cycle of 2 years, 25% would be 4 years and so on (1/.5, 1/.25)… To account for those upgrades that carriers classify as gross adds, I use churn rates as a basis for an adjustment assumption. With out an adjustment, the upgrade cycle has extended from 3 years (2010) to recently (2018) longer than 4.5 years. We know that is too long, which is not a surprise since upgrade activity is not full captured. After adjusting, those rates go from 2.23 years (2010) slowing to 3.46 years in 2018. [A second method, omitted here, yields roughly the same result.]
Click to enlarge.
In the Fall of 2014, Apple introduced its first iPhone with a large screen display-The iPhone 6 Plus. The decline in upgrade rates quickly reversed as iPhone sales surged due to the considerable amount of pent-up demand for a large display iPhone model. After iPhone Plus mania subsided, upgrades rates resume their decline and have really collapsed in the last 2 years.
When / Will we see another event like 2014? A massive upgrade cycle or “super cycle” has been expected for two years now, yet it has not materialized. However, an iPhone that is not upgraded this year, is an iPhone that might be upgraded next year. iPhones do not last forever; eventually, they will have to be replaced. As iPhone owners hold on to their devices longer, the amount of pent-up demand for future iPhones increases. So while Apple may have periods of weak iPhone revenue resulting from soft upgrades, there will be periods when upgrades rebound generating strong iPhone sales. [emphasis mine]
My take: Muller is a long-time participant in my quarterly Apple Earnings Smackdowns, where his estimates regularly beat the Wall Street professionals’. Last quarter he came in first in the all-categories ranking. His Financial Alchemist blogspot is on my blog roll.