- Apple's "installed base" of iPhones grew 30% to 1.3 billion, the company says.
- But iPhone sales declined 1%.
- Bernstein analyst Toni Sacconaghi Jr. believes the second-hand iPhone market is now cannibalising new iPhone sales.
- The $1,000 price of the iPhone X makes a used phone look like a bargain.
On Apple's last earnings call, CEO Tim Cook announced some good news: "Apple's active installed base reached 1.3 billion devices in January and is at an all-time high for all of our major products.
"1.3 billion devices represents an astonishing 30% growth in just two years."
But Cook also announced that new iPhone sales declined 1%.
Bernstein analyst Toni Sacconaghi Jr. wants to know why that is. "If installed base growth is healthy, why is iPhone growth stagnant?"
It's a good question. One of Apple's more formidable strengths is its vast audience of longtime iPhone users. People tend to buy a new phone every two or three years, so the historic expectation has been that the installed base will drive future sales.
Some analysts even expected a "super-cycle" to emerge last year as older iPhone users re-upped into the new iPhone X.
Instead, sales went down.
The installed base isn't coming to the rescue anytime soon, either. "Despite this strong growth in installed base, we ... do not expect iPhones to grow in FY 18, the third straight year of flat-to-declining units," Sacconaghi wrote in a recent note to clients.
Now, Sacconaghi believes he has figured out why it is that the "installed base" can grow at 30% while new unit sales are sagging. The base is being fuelled by used, second-hand and resold devices. New iPhone replacement sales are essentially flat, and all the growth is in the second-hand market, Sacconaghi says:
"Growth in Apple's installed base of used/resold devices explains the disconnect between installed base growth and tepid unit growth. We estimate that the installed base of used iPhones is now 227 million, or nearly 30% of iPhone's total installed base."
"The upshot is that Apple's iPhone installed base growth of *new* phones – likely the best leading indicator of future iPhone sales - may be lower than many realize, and looks to be flat in FY 18."
Sacconaghi believes as many as 65% of new iPhones will be resold this year, adding 100 million used iPhones to the second-hand market annually. That is enough old phones to reduce the upgrade rate for new phones. The overall upgrade rate will decline from 36% in 2015 to 22% in 2019, Sacconaghi estimates:
This is in some ways good, because it expands the Apple universe of users and their devices. Those 1.3 billion users will still be paying for apps, music and movies through iTunes, Apple Music, the App Store and Apple's other "Services" revenue.
But if Sacconaghi is right, it means new iPhone sales are being cannibalized by older phones that still work well. An iPhone 6S is functionally very similar to an iPhone 8. And with the price of an iPhone X at more than $1,000 (or £999 in the UK), poorer users have more incentive than ever to buy a used phone rather than a new one.
