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iPhone upgrade rates are improving: Morgan Stanley
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Published Nov 25, 2024 09:00AM ET
© Reuters
Investing.com -- Blended upgrade rates for Apple Inc (NASDAQ:AAPL)'s iPhones are improving, seeing a 2-percentage point year-over-year increase across the US, China, UK, and Germany, Morgan Stanley’s 2024 AlphaWise Global Smartphone Survey shows.
The jump was driven by a 1-point uptick in the U.S. and a 5-point rise in China. According to Morgan Stanley (NYSE:MS) analysts, this suggests iPhone replacement cycles could contract by 0.1 years in fiscal year 2025 (FY25).
“These results compare favorably to our expectations for a 0.2-year extension of iPhone replacement cycles in FY25 and would put upward pressure on our flat Y/Y (~230m units) forecast for iPhone shipments in FY25,” analysts led by Erik W. Woodring noted.
“However, given more cautious near-term iPhone build data points, we are keeping our FY25 iPhone shipment estimate unchanged at 230M units (flat Y/Y) for now,” they added.
A key factor influencing upgrade decisions is Apple Intelligence. Half of global iPhone users who do not plan to upgrade in the next 12 months reported the delayed rollout of Apple Intelligence as a factor.
Morgan Stanley estimates that resolving this issue could lift upgrade rates by 3 points, translating to upside of 271-313 million iPhone shipments in FY26. This is 13% above the bank's current iPhone shipment base case of 258 million shipments in FY26 and in line with our 291 million shipment bull case.
In China, Apple is regaining momentum, with a 24-point improvement in net switching rates to +6%, indicating market share gains amid easing competitive pressure from Huawei. iPhone retention rates in China also rose to 81%, demonstrating strengthening customer loyalty in a key market.
“In our view, this sets iPhone up for growth when the China macro improves,” analysts said.
Apple Intelligence, featuring enhancements like upgraded Siri, image-related improvements, and ChatGPT integration, is emerging as a top-five reason for upgrading.
The survey reveals strong interest in these features, with many prospective buyers willing to pay nearly $9 per month for unlimited access. This subscription potential could add $7-14 billion in high-margin services revenue by FY27.
Still, Morgan Stanley keeps its FY25 iPhone shipment forecast unchanged at 230 million units, citing cautious near-term trends.
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