AP
Apple CEO Tim Cook
- Apple has been struggling to grow iPhone sales of late.
- But customers' reluctance to buy recent models has translated into huge pent-up demand and the potential for a massive wave of upgrades, GBH Insights analyst Daniel Ives said in a new note.
- Apple could sell as many as 350 million iPhones over the next 12 to 18 months, Ives said.
To mix a metaphor, Apple may soon turn lemons into lemonade.
For much of the last two years, the company has been struggling to grow its iPhone sales. But precisely because so many of its customers haven't upgraded their phones in a while, Apple is due for a huge wave of upgrades, said Daniel Ives, head of technology research at GBH Insights, in a new research note. In fact, as many as 350 million iPhone owners may update to new devices over the next 12 to 18 months, he said.
"We believe the Street is now starting to fully appreciate the massive iPhone upgrade opportunity on the horizon," Ives said.
The upgrade cycle will likely be set off by the release of the next generation of iPhones, which are expected this fall, he said. Apple is reportedly planning to release as many as four new models, including both an updated, and a jumbo-sized version of the iPhone X; a phone similar to the iPhone X, but with an LCD screen rather than an OLED display; and a new version of the budget-priced iPhone SE.
Those phones will likely spark more interest than last year's models. Last fall, Apple introduced the iPhone 8 and 8 Plus, which looked more or less the same as its new models from the previous three years. It also launched the iPhone X, which featured a high-tech facial recognition system and a flashy design, but cost a whopping $1,000. Over the last 12 months, Apple sold 217 million iPhone, up just 1% from the same 12-month period a year earlier.
The new phones "will help capture the underlying demand [for] upgrades among customers that have decided to bypass the ... cycle this time around, with price points and features that catalyze fence-sitting iPhone customers onto their next smartphone," Ives said.
Apple could see "a renaissance of growth" in China
Apple has a particularly big opportunity in China, so it's crucial that the new phones strike a chord there, he said. There about 100 million iPhone customers in the country, and about 60 million to 70 million of them are due for an upgrade over the next 18 months, he said.
Ives sees "the next [phone] launches as a major potential product catalyst in the all-important Chinese market, which could see a renaissance of growth on the horizon for" Apple.
That said, a report on Tuesday from industry research firm Gartner noted that sales of high-end and premium smartphones were weak during the first three months of the year, with consumers favoring entry-level and mid-tier (sub $150) models.
"With its exclusive focus on premium smartphones, Apple needs to significantly raise the overall experience of its next-generation iPhones to trigger replacements and lead to solid growth in the near future," Gartner analyst Anshul Gupta said in the report.
Ives, in his noted, reiterated his "highly attractive" rating on Apple's shares and his $200 price target. Apple's stock closed regular trading Tuesday down 68 cents, or less than 1%, to $187.90.