Longer iPhone Upgrade Cycle Is Now One Of Apple’s Biggest Self-Induced Problems
Apple is facing a tough road to get iPhone fans to upgrade their devices regularly as in years past. Slowing sales and upgrade rates aren't just an Apple problem; most smartphone makers see the same issues as users are holding onto devices as retail prices climb and feature updates between models are incremental at best. Analyst Toni Sacconaghi from Bernstein has stated that the iPhone upgrade cycle for the average consumer is now a lengthy four years.
In 2018, the average iPhone buyer upgraded their device every three years. The analyst also noted that the battery replacement program contributed to the reduced demand for upgrades. Apple's battery replacement program was cited as a significant part of the reason Apple missed its recent earnings targets so badly.
Sacconaghi predicts that only 16% of iPhone users will upgrade this year. Apple is reportedly planning three new iPhone devices this year, despite soft sales. And if the analyst is correct, no matter what Apple rolls out, it won't see massive upgrades this year. Sacconaghi also notes that aside from the battery replacement program pushing upgrade rates further out, Apple's ever-increasing retail prices for iPhones are also pushing buyers away. Apple saw this happen in China, and after cutting prices, iPhone sales boomed.
The analyst predicts that in fiscal 2019, iPhone unit sales will decline 19%, despite the iPhone installed base growing to the tune of 9% last year. Other than decreased profits from iPhone sales slowdowns, Apple's iPhone problem is also expected to contribute to slower growth of the Apple services business, such as Apple Music and Apple News. With fewer iPhones sold, the analyst thinks that Apple might hit a cap on how many subscribers it can add.
Many buyers are turning to the used smartphone market for their upgrades; Sacconaghi notes that these used iPhone buyers are expected to be less likely to spend money on extra iPhone services. This led the analyst to predict Apple's services business will only grow by 15% in fiscal 2019; it has grown 20% in each of the last three fiscal years.