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Has iPhone Growth Reached its Peak?

Apple will likely see serious iPhone growth through 2016.

May 25, 2015
iPhone 6

Right after Apple announced record-breaking, first quarter iPhone sales, Wall Street analysts were wringing their hands over the future growth of Apple's iPhone. They reasoned that Apple could not continue to break sales records, and some even suggested that iPhone sales had peaked.

I am as pragmatic as the next guy when it comes to forecasting iPhone growth records, but our research shows that Apple will see serious iPhone growth with the iPhone 6 models through 2015 and very likely into next year, too.

Opinions After the first of the year and well before Apple's calendar Q4 earnings report, we predicted Apple sold 72.5 million iPhones in that quarter, even though the highest Wall Street estimate was around 69 million. Apple sold 74.5 million. Our prediction for the first quarter was 61 million even though the highest Wall Street estimate was 58.5 million, and Apple sold 61.2 million last quarter.

My own personal mantra is to never underestimate Apple's ability to surprise us. But there are three reasons I am optimistic about iPhone growth into 2018.

The first lies in the fact that Apple execs have stated that fewer than 20 percent of iPhone users have upgraded to the iPhone 6. Part of that is related to smartphone upgrade cycles. However, Apple is adding millions of new users to the iPhone fold each quarter, and given its rich app and services eco-system, the iPhone will continue to be of great interest to people all over the world.

But Apple is now selling more iPhones in China than in the U.S., and by 2017, China could be the most profitable region for Apple smartphone sales as well as Apple iPads, Macs, and Apple Watches. In China there is a rising middle class that loves Apple. Apple products are status symbols in there, and this demographic will drive sales of Apple products sky high in the next few years.

There is a very good book about the rising middle class in China called China's Super Consumers by Savio Chan and Michael Zakkou. The authors discuss how Apple has gone after this market and why it is poised for even more success in this country going forward. It is too myopic to judge Apple's iPhone sales through a U.S-only prism. Apple is an international company, and much of its future growth will come from international markets that are barely tapped by Apple at this time.

The second reason is due to what Apple calls switchers. During a call with analysts after its most recent earnings were announced, Apple CEO Tim Cook stated at least five times that demand for iPhones by switchers (those switching from other smartphone platforms to the iPhone) are very strong. This is not a trivial fact. Our own research shows that Apple is luring millions of Android smartphone users over to the iPhone and iOS and we have no reason to believe that this will not continue for the near future.

Many Android smartphone buyers opted for Android phones because of their larger screens.  But our research showed that 40 percent of them would have preferred buying an iPhone over an Android smartphone. Consequently, pent-up demand by switchers have been key to Apple's iPhone growth. As Android users move out of their two-year contracts, it's reasonable to believe more and more of them will migrate to Apple's iPhone platform. I see switchers continuing to help drive strong iPhone sales at least through early 2016.

The third reason falls under my "never underestimate Apple" mantra. It is crazy to think that Apple will not continue to innovate around the iPhone. Making a larger-screen iPhone is nice, but that is not innovation. What is innovative is the power of its new mobile processors, great screens, dual authentication security and an evolving ecosystem that makes the iPhone a great smartphone. I realize that Wall Street analysts have short-term views on purpose and have a hard time with long-range views. However, as an industry analyst it is imperative that we look beyond each quarter and look at the things Apple might do to make the iPhone even better, which always translates into strong iPhone sales.

I believe that Apple will continue to evolve the current iPhone design through 2015 and the new iPhone it delivers later this fall will have a faster processor, better camera, higher security, and some new and innovative touch features such as the tap-and-gesture engine that is on the Apple Watch today.

However, I believe the next major advance in the iPhone design that will drive huge refresh rates will come with the iPhone 7, which should debut in the fall of 2016. While this is pure speculation on my part, I can see how an iPhone 7 could be where Apple introduces things like an iris scan for enhanced security or a 3D camera that uses lasers so that you can point it at anything and get its dimensions. It could even be used to take a picture of something that can be printed out on a 3D printer.

I recently wrote about an Apple patent for a 3D camera, and I believe we could see this in the iPhone 8. Apple has also patented a smart pen, and while it seems targeted at the iPad, it could be used on a new iPhone with special sensors built in to give even more functionality to their smartphone. And who knows what other tech innovations are in the Apple labs today.

In the short term, Apple could hit a snag or two with iPhone growth since breaking sales records consistently each quarter would be difficult. However, to think that Apple has hit a saturation or peak in iPhone demand is premature, given its ability to innovate and an international audience that represents strong iPhone growth potential is highly likely. Apple never rests on its laurels, and you can bet that it will not stand still when it comes to making the iPhone even better to drive greater demand in the future.

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About Tim Bajarin

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Tim Bajarin

Tim Bajarin is recognized as one of the leading industry consultants, analysts, and futurists covering the field of personal computers and consumer technology. Mr. Bajarin has been with Creative Strategies since 1981 and has provided research to most of the leading hardware and software vendors in the industry including IBM, Apple, Xerox, Compaq, Dell, AT&T, Microsoft, Polaroid, Lotus, Epson, Toshiba, and numerous others. Mr. Bajarin is known as a concise, futuristic analyst, credited with predicting the desktop publishing revolution three years before it hit the market, and identifying multimedia as a major trend in written reports as early as 1984. He has authored major industry studies on PC, portable computing, pen-based computing, desktop publishing, multimedia computing, mobile devices, and IOT. He serves on conference advisory boards and is a frequent featured speaker at computer conferences worldwide.

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