The Other Side of Equipment Installment Plans (EIP)
EIP’s shift to 24 monthly payments, with trade-in, has not only increased premium device sales in the US, but also consumer awareness of the value of their smartphone. Previously mass-market consumers thought their smartphone was worth ~$200 and practically worthless after two years. We understood EIP would elongate upgrade cycles, as consumers’ monthly bills decreased on the 25th month. However, as we exit 4Q17 and the three-year anniversary of EIP, carrier reported upgrades indicate a significantly broader base of customers are willing to hold their devices for more than three years. We believe the lack of “must-have” innovation in the latest iPhones has led to the harsh reality that, for a considerable portion of Apple’s base, the cost savings of holding an iPhone 6 for the fourth year was more appealing than the incremental cost and utility of a newer device.
New Carrier Realities
While AT&T and Sprint performed in the vicinity of our expectations in 4Q17, reporting increasing upgrade rates y/y, Verizon and T-Mobile, arguably the two carriers with the most momentum entering the quarter, vastly underperformed. Verizon’s larger base of pragmatic and non-tech enthusiast subscribers proved more willing than our most pessimistic expectations to delay upgrading their device. T-Mobile underperformance was likely driven by their introduction of a down payment for device financing over $720. Combined with weaker promotion y/y and the impacts of EIP mentioned above, smartphone upgrade rates are likely to continue to decrease in 2018, as carriers focus on profitability over market share and M&A.
Lowering 1H18 iPhone X Expectations
While our overall iPhone estimates for the 1H18 remain unchanged, we are reducing iPhone X mix due to a weaker than expected sales increase from a fully supplied iPhone X in mid-December. In late Dec, we tracked stronger than expected sales of the discounted (BOGO) iPhone 8/8P and iPhone 7/7P. We surprisingly found slight iPhone 8/8P supply constraints across carriers and indications of mass market consumers’ lack of appreciation for the iPhone X’s distinguishing features. We believe the BOGO iPhone 8/8P promos likely exacerbated the only mildly promoted iPhone X weakness, but none the less view the fully supplied iPhone X’s lack of increased traction as a sign its form factor and $1,000+ price could be a harder sell with non-enthusiast buyers in the 1H18. We feel Apple is primarily competing with itself, and believe its loyal consumers are satisfied choosing between the different iPhone price points and see little sign of Android competition slowing iPhone sales.
Improved Pixel 2 Traction
Google and Verizon considerably improved weak Pixel 2 momentum in December, helped by an aggressive $300 discount and improved sales rep enthusiasm for the devices as Apple and Samsung flagship alternatives. We have heard Google “pulled all the right levers” to get the Pixel 2s better positioned with Verizon store reps. We believe this ranged from the aggressive discounts, improved marketing, sales rep sales contests and requirements for all sales reps and store managers to carry the devices. We view the increased traction as a considerable accomplishment and are interested to see how and if the momentum can continue going forward. We still believe the Pixel 2s are down slightly y/y vs the original Pixels.
The New Apple Era
As Apple’s iPhone base matures and users purchase their second or third iPhone, we are seeing a shift in carrier core store customer make-up. The iPhone enthusiasts increasingly buy their devices online, either from their carrier or Apple directly, leaving the carrier store walk-in customer to be made up of more non-enthusiast iPhone buyers. These customers are much more likely to purchase an iPhone 8 or older iPhone. With the iPhone X unavailable at retail in November, carrier sales reps were surprisingly successful selling the iPhone 8/8P, and the now relatively inexpensive iPhone 7/7P, as Apple loyalty limits the consideration of Android alternatives. With iPhone X supply expected to improve considerably by mid-December, we are interested to see how non-enthusiasts embrace the $1,000 iPhone X.
Huawei US Entrance
As we look into 2018, we are intrigued by the entrance of Huawei in the US and especially how they will approach the premium and low-end markets. We believe they have both premium and low-end devices coming to AT&T in 1Q18 and are working with Verizon to potentially bring a premium device in the 2H18. With their surprising success penetrating W. Europe in 2H15 and having established themselves as the clear #3 to Samsung and Apple by 2016, we respect their ability to penetrate a mature market with little to no brand awareness. However, with the recent lack of success of other new premium Android players, we could easily see Huawei struggle, especially at an Apple dominated AT&T. Either way, with Huawei having spent years trying to enter the US market, Android competition is showing no signs of weakening in 2018.
The iPhone Snowball
The delayed iPhone X has created a challenge in comparing y/y sales trends. We believe the iPhone 8/8P sold better than expected and were only down ~30% in Sep and Oct versus last year’s iPhone 7/7P. Our research has been tracking better than expected initial supply of the X, with activations in-line to slightly behind Sep’s iPhone 8/8P sales. Thus, in early Nov, combined iPhone 8/8P and X flagship sales are currently trending up ~35% y/y versus the 7/7P. Should these flagship trends continue, in addition to legacy device strength (iPhone 7, 6, SE) across post and prepaid, our 4Q17 y/y growth forecast could prove conservative.
Last year's Pixel success was impressive for a new entrant, driven by quality devices with excellent marketing and unique services. However, the first Pixels benefited from a weaker competitive environment, including the lack of the Note 7 and a mild iPhone 7 refresh in 4Q16. This year is proving more difficult due to the relatively modest Pixel 2 hardware refresh, which lack the thin bezels of the Note 8 and iPhone X, and limited incremental software and service innovation. Moreover, it appears last year’s Pixels will be discontinued shortly, removing a potential growth driver. When combined with early concerns regarding screen quality, it seems the Pixel lineup is in for a tough year.
iPhone 8/8P Perspective
Our initial impression of the iPhone 8s was underwhelming, especially when compared to the iPhone X, and we were therefore not surprised to see 8/8P preorder volume down ~60% y/y across carriers. Consumers that pre-order iPhones are much more likely to preorder the iPhone X. However, Sep iPhone 8/8P sales are only tracking down ~30% versus a more heavily promoted 7/7P. Interestingly, with full availability of both the iPhone 8s this year, we are tracking a meaningful increase in plus variant mix in Sep from ~33% for the 7P to ~55% for the 8P.
Motorola Case Study
When we learned Motorola had successfully ranged their Z2 Force across the big four postpaid carriers, we were impressed with their initial offer of an unbreakable screen flagship, a free $300 projector mod, carrier BOGO promos and plans for a $200M+ US marketing campaign. With an established US brand, we believed Motorola could become a flagship alternative to LG, and possibly Samsung users. However, the early Aug launch was hampered by limited supply and marketing. The eventual marketing push proved confusing and featured ads reminiscent of the Motorola RAZR brand. With less than 40k total sales at AT&T, Sprint and T-Mobile combined, the Motorola Z2 Force is a case study in how high Apple and Samsung have set the bar in the US smartphone market.
Apple's First Triplets
This fall Apple is expected to launch its first three flagship portfolio, the iPhone 7S, 7SP and iPhone 10th anniversary. Historically, we have found within triplet portfolios the middle device struggles due to consumer’s tendency to splurge for the most premium device or rationalize saving money with the least expensive. However, it is unclear how a $1,000+ price point and severe supply constraints for the most premium device will impact this dynamic. We are certainly very interested to see how Apple will segment the triplets with features and price, and would not be surprised to see the 7SP struggle.
Can a $1,200 iPhone Sell?
We are assuming Apple releases the iPhone 7S ($650), 7SP ($770) and iPhone X ($1200) this fall. With installment pricing, and depending on memory variant, the 7S would be $27-$35/month, the 7SP $32- $40/month, and the iPhone X $50-$55/month. Although $1,200 is a substantial leap, we believe it could be palatable for two key reasons. First, installment pricing has supported higher flagship pricing over time, with consumers increasingly choosing the most expensive variant within a line-up. Second, trade-in promos during launch and in Q4 could reduce the price of the iPhone X to ~$30/month. Although the 7S and 7SP would decrease in price to ~$7-$11/month, we believe if the iPhone X offers truly unique and innovative features, it could disproportionately benefit from discounting because of consumer desire for future proofing and a willingness to splurge for the latest smartphone status symbol.
Bring on the Noise
This Fall is shaping up to be one of the more competitive marketing landscapes we have seen. Apple is sure to be aggressive with its 10th anniversary iPhone and unique augmented reality offering. Samsung will need to spend aggressively to increase awareness for its Note 8, which is launching simultaneously with the iPhones this year. A key driver for Pixel success last year was Google’s massive marketing campaign, which we expect again with the October launch of the Pixel 2. Motorola will launch its flagship Z2 Force across all carriers later this month, and we hear of a $200+ million campaign. Aside from devices with big money behind them, the upcoming Essential Phone at Sprint and Google’s first Tango device by ASUS at Verizon will also fight for our attention. So, bring on the noise, we will have our popcorn ready!
Samsung Galaxy Note 8
Despite previous reports of an early Samsung Galaxy Note 8 launch, we are tracking a delayed mid-Sep launch, essentially in-line with the 10th anniversary iPhones. We have been positive on the Samsung Note 8's opportunity to not only capitalize on pent-up demand from a unique and loyal customer base but also benefit from improvements over the current Samsung Galaxy S8s, including dual cameras and a fully functional Bixby voice assistant. However, with Apple sure to dominate press coverage and secure exclusive carrier window signage and website landing pages, the Samsung Note 8 will lack the ~two weeks of exclusive carrier support its predecessor received last year. Thus, while certainly not disastrous for Samsung, we are lowering our expectations and no longer believe the Samsung Note 8 can improve upon the weaker y/y GS8 trends thus far.
Virgin Inner Circle
irgin recently announced an “Inner Circle” online iPhone offer, including an iPhone SE 32GB for $280 or iPhone 6 32GB for $320, with a year of unlimited voice, text, and data for $1 without a contract. With $120 savings on the iPhone SE and $600 of free services, customers are essentially making money, giving the clear impression Sprint is focusing on short-term results. We believe Virgin sells ~300k smartphones a quarter with 30% (or ~100k) sold online and the remainder through national retail. While our most optimistic forecast is for only 100-300k incremental iPhones sales through Q3, the dynamics we are closely tracking are consumer awareness, and more importantly, carrier competitive response, which does create the potential for meaningful iPhone sales.
With the increasing likelihood of a delayed launch of the OLED variant of the three iPhones launching this fall, we have adjusted our 2H17 forecast. Consequently, we now believe Q3 US iPhone sales will decline ~10% y/y, with ~40% of new flagship sales pushed into Q4. Read More
Google’s second Project Tango device, the ASUS ZenFone AR, is slated to launch exclusively on Verizon in late June. We expect Verizon to place considerable promotional focus on this powerful device, which includes a 23 MP camera, 2 additional cameras, up to 8GB RAM (World’s 1st) and Daydream VR support. We forecast ~150k sales for the ZenFone AR at Verizon through the end of the year and believe developer interest will slowly increase along with device sales. However, Apple’s surprise announcement of ARKit supporting all legacy devices with an A9 chip (iPhone SE, 6S and higher / iPad 2017, iPad Pros) immediately expands the developer opportunity from tens of thousands to hundreds of millions. We estimate ~90M A9 devices in the US at the end of 1Q17. So, while Apple’s ARKit likely lags Project Tango’s depth, we believe Apple’s massive installed base of supported devices, including tablets, which Tango currently lacks, and likely expanded functionality with the 10th anniversary iPhone launch, puts Apple firmly in the AR platform driver seat.
While we were expecting slightly more aggressive GS8 promotions y/y, T-Mobile preferred to remain on the sidelines, allowing AT&T & Verizon to offer relatively weaker GS8 launch promotions vs last year. Last year, all carriers quickly matched T-Mobile's aggressive BOGO offer at launch. This year, only Sprint offered an aggressive BOGO lease offer at launch, as AT&T’s BOGO requires home TV service and Verizon’s GS8 discount promo has a variety of requirements. Subsequently, we are tracking Sprint up the most y/y vs the GS7 at ~30%+. AT&T and VZ are essentially flat and T-Mobile down the most at ~15%. Overall we have the GS8 flat y/y through April, and while we expect increased promotional focus in Q2, we would not be surprised to see the GS8 down 10%+ vs the GS7 through the end of Q3.
While Motorola’s presence in the US has been limited to Verizon the last few years, the OEM is on track to launch across carriers in the 2H17. In addition, Nokia (HMD) is potentially entering the market and we expect ZTE to continue to grow its business across carriers. TCL is also on the verge of entering T-Mobile with a white labeled device. With LG the primary Android alternative to Samsung at most carriers, we could see LG’s struggles worsen considerably in the coming months.
Red Apple iPhones
While the unexpected late March release of red iPhones was interestingly timed near Android flagship announcements, the impact on iPhone sell-thru has been minimal thus far. Initial checks indicate a general lack of awareness among consumers, with sales predominately to customers already intent on buying an iPhone. Although AT&T, Sprint and Verizon appear to have received healthy initial supply, availability at T-Mobile has been scarce, with most stores having yet to receive an initial shipment. While we do not anticipate a material impact on overall iPhone sales in the June Q, the ability for sales reps to mention a recently launched iPhone SKU will certainly not hurt.
We have written previously of the difficult comps the GS8s will have to the GS7s.... Combined with constant rumors of an upcoming 10th anniversary iPhone, Samsung's most important smartphone launch is happening in its most difficult launch environment ever.... Read More
ZTE Poised to Expand US Presence?
With today's news of ZTE settling with the DOJ, ZTE could have removed its last major obstacle to a larger US presence. ZTE has been in the US market for ~5 years and has slowly grown into the clear #3 prepaid smartphone vendor behind LG and Samsung with quarterly volumes of ~1.5M. Postpaid trends have been smaller and mostly limited to T-Mobile, but ZTE has recently benefitted from the successful ZMax Pro launch. The device's high-quality specs and low price have made it a low-end hit at T-Mobile. Interestingly, ZTE is currently in all the national prepaid carriers (except Verizon’s) and with the DOJ issues behind them, has the history and relationships to expand into postpaid.
AT&T's Changing Focus?
AT&T appears much less focused on competing for smartphone subscribers compared to the past ~10 years. Previously, AT&T would promote its broad portfolio of devices and was quick to match the other carriers’ promotions. Today, AT&T's smartphone portfolio has shrunk to 18 SKUs from 32 in 2015 and recent promos require adding home TV service. Conversely, Verizon has brought in Google’s Pixels and continues to promote a differentiated Motorola line up. Except for AT&T, all carriers continue to cycle traditional device promos, such as BOGOs, bundles, and discounts. AT&T's new approach appears to assume consumers will buy either an iPhone or Samsung flagship, with reps instead focused on selling consumers a differentiated portfolio of services, not devices.
Verizon Raises the Bar
While T-Mobile has certainly been the most promotive carrier over the last few years, Verizon has responded in multiple ways in the back half of 2016. Beginning in July, Verizon launched its first free smartphone offer, addressing a previously ignored low-end segment. Verizon then raised the bar over the holidays as we tracked, in addition to a broad portfolio of free low-end phones, staggered one to two-day flagship promotions for half off ($400) and even free iPhone 7s, GS7s and Pixels with trade in. Interestingly these flagship promotions were not broadly communicated and only available for a very limited time. It appears when combined with Verizon's exclusive on the Google Pixel, a device well aligned with T-Mobile's younger tech-savvy customer base, that Verizon is determined to slow T-Mobile.
Looking Ahead to the Samsung Galaxy S8
As we evaluate the opportunity for the GS8, our initial thoughts go to the difficult comps set by GS7 BOGO promotions at launch. These unprecedented promotions allowed the GS7s to gain virtually all high-end Android share available from LG and HTC and cannibalize nearly all legacy GS6 sales. With such a difficult comp, combined with Samsung's historic inability to gain meaningful share from Apple, we are expecting only low single digit growth y/y for the GS8's. Ironically, this growth is driven in large part by the lack of the Note 7 in the portfolio. We are also very interested to see if discounted GS7s can lead to the return of meaningful legacy device sales in 2Q17.
Google Pixel Outperforms
Verizon’s sales force is one of the industry’s most influential and thus when we tracked weak Pixel preorders and general lack of sales rep enthusiasm, we were concerned. However, we have seen an abrupt change in attitude, with reps now enthusiastically recommending the Pixel, especially for Note 7 switchers. Interestingly, the main selling points have been the Pixel's "pure" Android experience, lack of carrier bloatware and unlimited cloud storage with virtually zero mention of Google’s Assistant. Assuming Google & HTC can improve supply in Q4, we can now easily see these devices taking share from Samsung and eventually supplanting Motorola as the #2 Android OEM at VZ.
Samsung Note 7 Update
As we highlighted last month, we are tracking the impact of the Note 7 recall along two key variables. 1) Samsung loyalty and 2) willingness to leave Android. Our October trends highlighted slightly weaker Samsung loyalty with our base case now slightly lower at ˜65% versus 70% last month. However, within the ˜35% leaving Samsung, willingness to leave Android has been much higher than expected with an overwhelming majority (80%+) choosing iOS. We believe this supports the view of Note customers preferring premium brand/status over the Android ecosystem. While this is a mild positive of Apple, our estimates for iPhone sales from Note 7 switchers only increases by 300k in 4Q16 to 550k.
Last week’s Pixel announcement is intriguing from many perspectives, including the choice of an exclusive carrier, the potential for Pixel-only Google services and Google’s renewed effort to sell devices direct to consumers. Longer term, we believe the Pixel offers an important hedge to Samsung’s premium Android dominance and provides Google an excellent opportunity to innovate on an unfragmented platform, much like Apple. However, in the near term, we are not yet convinced the Pixels differentiate themselves enough from Apple and Samsung’s current flagships. Furthermore, with Motorola also selling exclusive flagship devices at Verizon, the first generation Pixels’ road to success will be far from easy.
Samsung Note 7 Beneficiaries
With Samsung ending Note 7 sales, we believe understanding the impact lies within two key variables. The first is the percentage of customers likely to remain loyal to Samsung. We believe the vast majority (70%) will remain with Samsung and likely choose a Galaxy S7 device alternative. The second, and more difficult variable, is what percentage of switchers are willing to leave the Android ecosystem. Note customers are aspirational and value premium brands, and thus the iPhone could certainly appeal to them. However, Note customers are also among Samsung's most loyal. Our base case assumes roughly half of switchers (or 15% of total) will choose an iOS device, which equates to only a 200-300k increase to 4Q16 iPhone sales.
Samsung Note 7 Aftermath
Smartphone recalls are rare and we have never seen one in our 15 years of market coverage. Samsung appears to be handling the recall extremely well and could have most, if not all, of the defective units replaced by the end of September. While we believe potential Note 7 buyers will be mostly channeled into a GS7 or GS7 Edge, the prime beneficiaries outside of Samsung will likely be the iPhone 7 Plus and, to a lesser extent, the LG V20. We are very interested in monitoring how long consumer and carrier sales reps’ memories are regarding this unfortunate situation.
The Return of the Free Phone and Verizon’s New Value Focus
In July, T-Mobile began offering free (after 24 monthly credits) low-end Samsung (On5 & J7) and LG (K7 & K10) devices with $65/6GB and higher rate plans. These promotions were certainly successful, with the On5 quickly going on backorder. Verizon was the first carrier to respond, and in late Jul offered a free Samsung J3v (after 24 monthly credits) with a $55/2GB data plan. While T-Mobile has consistently and successfully focused on the low-end smartphone market, Verizon has rarely offered such aggressive low-end promotions, and has consistently been the last carrier to pursue these consumers. We are interested to see if Verizon remains committed to this segment, and whether AT&T and Sprint follow with free low-end device offers.
Pokémon Go Impact
We have received a number of inquiries about the impact of Pokémon GO on US smartphone sales. While high-end devices as old as the Samsung GS4, LG G3 and iPhone 5 have the power and gyroscope to run the AR functionality of the game, we are not seeing any noticeable change in the run rates of premium devices. Should the phenomenon continue, we would expect the first impact to be a mix shift from ultra-low-end devices that lack the minimum requirements to run the game, to low-end devices like the Samsung J3 and LG K7 that can run the game, but without the AR functionality.
Connected Apple Watch Impact
The more we analyze the eventual impact of a connected Apple Watch, the more we realize this, like installment pricing and a maturing smartphone market, will likely lengthen the iPhone upgrade cycle. The more screens a user has to access their digital lives, the less role any one device plays. Much like how smartphones and tablets have elongated the PC upgrade cycle, the connected Apple Watch will likely elongate the iPhone upgrade cycle as it takes over many of the roles that were previously exclusive to the smartphone.
Apple iPhone Upgrade Model
Using our monthly US iPhone sales data, we modeled upgrades as a percent of sales for upgrade cohorts of 12, 24, 36 and 48 months for each SKU. Assuming the weighted average upgrade for each SKU increased from ˜22 months in 2007 to ˜28 months in 2015, upgrades as a percent of sales increased from 68% in 4Q14 to 72% in 4Q15. If we assume 75% of 4Q16 sales are upgrades, only 33% of 4Q14 iPhone 6 buyers need to upgrade to achieve flat US iPhone sales y/y.
Over the past eight quarters, smartphone manufacturers Apple and Samsung have increased their combined market share of the U.S postpaid smartphone market from 82% to 91%. During this same time, manufacturers such as LG, Motorola, HTC, and others have seen their combined share reduced by half from 18% in Q2 of 2014 to 9% in Q2 of 2016, according to the latest BayStreet Research estimates ending May 31st.
To make matters worse, the market for postpaid smartphones continues to contract and is on pace to decline 9.4% year over year in Q2 to roughly 20 million units. The combined effect of Apple and Samsung’s share gains and the shrinking market will result in only 1.7M total postpaid smartphones sold by other OEMS in Q2 of 2016, compared to 2.7M in the same quarter last year, a 37% decline.
Cliff Maldonado, Founder and Principal Analyst at BayStreet Research, comments: "The combination of a maturing U.S. postpaid smartphone market and aggressive Apple and Samsung "buy one, get one free" promotions in the last few months has created a bleak environment for the other Android smartphone manufacturers. The premium smartphone market has fewer and fewer alternatives to Apple and Samsung and we don’t see this changing anytime soon." Read More
Apple Not Losing Share
Despite unprecedented promotions, an award winning GS7/GS7E and a relatively underwhelming iPhone 6S, Samsung has gained only slight share from Apple in 1H16 in the US. The vast majority of GS7 gains have come from fellow Android OEMs, LG and HTC. The difficulty of getting iPhone customers to switch in large numbers has only grown clearer this year and it appears Samsung’s remaining high margin growth will likely come from gaining virtually 100% premium Android share.
Despite the carriers continually one upping themselves with ever more aggressive promotions (VZ’s latest is a free 50" Samsung Smart TV with 2 line activation), the overall smartphone market remains weak and has not increased in-line with the level of increased promotion. These aggressive promos are mostly driving share shifts between the OEMs and increasing sales of flagship devices at the expense of legacy flagships and mid to low-end Android devices. It will be interesting to see if the higher level of promotion activity continues into the iPhone 7 launch and how, if at all, Apple benefits. We certainly expect to see higher promotional activity y/y.
Running Out of Room
The combination of a maturing US postpaid smartphone market and aggressive Samsung BOGO promotions in March has created a bleak environment for the other Android OEMs. In 2Q15, Apple and Samsung controlled ˜85% of the US postpaid market, leaving roughly 2.8M units for the other Android OEMs. As we enter 2Q16, we estimate Apple and Samsung will control ˜90% of the postpaid market, leaving ˜30% less or 1.9M units for the remaining Android OEMs to address.
In early Sep 2015 (Data Walk Vol. 147), we wrote that Samsung’s 2015 GS6/Note 5 portfolio was confusing and lacked a pricing structure in line with what consumers value. Samsung’s 2016 portfolio is much cleaner, offering the flagship GS7 and, for an extra $100, a larger screen GS7 with curved display. No longer is Samsung charging a premium solely for a curved display. We believe the Note 6 launch will come in at a $100 premium to the GS7 Edge, offering an even larger screen and stylus. While BOGO and free VR headset promotions certainly drove unexpected strength in Q1, Samsung deserves credit for streamlining their portfolio and pricing. With rumors of more than two devices launching in Sep and an already large portfolio, we are concerned Apple may be poised to repeat Samsung’s 2015 miscues.
Samsung GS7 Cannibalization
While the initial success of the GS7 has outperformed our most optimistic expectations, it is important to note that Samsung’s legacy flagship portfolio (Note 5, GS6, GS6E and GS6E+) has slowed more than expected. This is partially due to the lack of price reduction on Samsung’s GS6, which occurred unusually early (Aug 15) in its lifespan. Consequently, the legacy flagship portfolio has declined 60%+ m/m vs last year’s ˜40%. Overall, Samsung’s flagship portfolio is still up a very healthy ˜25% y/y.
Upcoming Apple Event
As we’ve highlighted previously, Apple is set to launch a refreshed iPhone 5S later this month. In our opinion, the key to the announcement is whether or not the current 5S stays in the line-up and at what price. If the 5S is discontinued, we see only a minor benefit for US iPhone sales and would expect a normal low single digit sequential decline in the June Q. However, if the iPhone 5S remains in the portfolio at $350, or as rumored at $250, we could easily see sequential growth in the June Q. It is important to note that we have been tracking the iPhone 5S at $250 (before subsidy) at Cricket, where it has sold well for its price tier.
March Launch Bonanza
Traditionally, Q1 is a quiet period for US smartphone launches and promotions. Carriers often clear inventory in anticipation of Android flagship launches in April & May. This year is shaping up as quite a bit different with Apple, Samsung and LG all on tap to launch devices in March. Last year’s Apple Watch coverage certainly disrupted Samsung’s GS6 launch buzz and this year could be similar, as Samsung deals with iPhone 5SE coverage and the launch of LG’s G5. Interestingly, HTC could benefit from launching its M10 later in Q2.
Key Differences for the Apple iPhone 6S Cycle
When we compare Apple’s prospects for its 6S cycle versus the 5S cycle, we highlight four key differences in the US. First, carrier promotions are much more aggressive than under the subsidy model two years ago. Consumers can now easily upgrade out of cycle at a much lower upfront cost with carriers willing to reimburse termination fees when switching carriers. Second, the perceived innovation from the 4S to 5S was much smaller than it is from the 5S to large screen 6S. Third, Apple’s portfolio is considerably larger now with 5 SKUs versus only 3 for the 5S cycle, allowing Apple to gain share at lower price points. Finally, Apple’s key Android competition is weaker now. Samsung’s GS6 missed the mark on differentiation vs the iPhone and has ceded share to Apple throughout 2015. So while the market is certainly slowing, Apple is in a position to continue to gain share and grow y/y.
Previously published insights from BayStreet Research about notable trends in the smartphone, tablet, and wearables markets in the U.S. and Western Europe.