## How many iPhones will be upgraded next year?

Last week I proposed that there were two significant markets for the new iPhone: 1) the existing iPhone user base 2) smartphone “non-consumers”. Today I want to dig a bit deeper into the first market to get an idea of what it amounts to.

The following chart shows the total iPhone shipments over time with an estimate for the mix of models during the last two years.

The way I calibrated the mix is by taking into account the statement that Tim Cook made that half of all iPhones shipped were iPhone 4. I first estimated that this past quarter (ending September) included about 22.3 million units. That makes the total iPhones to end of Sept 151.3 million. Half would be about 75 million. Therefore the red area needs to add up to that total. The remainder must therefore be the yellow, 3GS volume.

This mix implies that the following shipments by variant (through end of Sept 2011):

• iPhone 1: 6.1 million
• iPhone 3G: 24.4 million
• iPhone 3GS: 45.4 million
• iPhone 4: 75.4 million

I also highlighted in grey the most likely target market for upgrades during the next 12 months. What I’m assuming is that recent buyers will not be likely to upgrade but those having purchased an iPhone two years hence will probably be looking to replace it. The naive approach is to assume all the iPhones beyond a certain age will be automatically upgraded. That would give almost 70 million units. However, not all those phones are in use and many of those phones may have already been upgraded to iPhone 4s. 70 million is a theoretical maximum. We have to be more specific.

In order to get a better figure for this I created a probability distribution (PD) which suggests the likelihood that the phones purchased in that quarter get upgraded in the next 12 months. I created two such PDs illustrated in the inset chart below:

PD 1 is the simplest. It assumes that 90% of two year old iPhones will always be upgraded. PD 2 is a bit more nuanced where it assumes that there is a range of probabilities over a wider period, but with a peak in the 2 year old zone. These PDs are guesses but consider them starting points for debate.

By multiplying the probability in the line chart (PD1) with the area below it (the units it covers) we get get the shaded area indicating which phones (and variant) will be upgraded next year.

The areas not shaded are either left un-upgraded or represent phones which were already upgraded to iPhone 4’s last year. The PD1 assumption yields 36 million units.

Doing the same with PD2 yields a different upgrade set shown below:

This assumption leads to about 36.2 million units upgraded in the next 12 months. Very similar to PD1 but approached from a different angle. Are these figures credible? I don’t know. The real PD may be quite different but I think these are pretty conservative figures. They are about half of the theoretical maximum.

# Why is this Interesting?

This is interesting because of two reasons.

Firstly, it lets us calibrate our forecast for iPhone sales next few quarters. My own estimate stood at 140 million prior to this analysis. Is it reasonable? Remember that the target market includes non-consumption or non-iPhone, non-Smartphone users. Given the “guaranteed” market above at least 36 million, it makes the non-consumption target about 104 million. Does it sound reasonable?[1]

Yes. Primarily because most iPhones sold during the last 12 months were sold to non-consumers. And there were 76 million of them. Apple’s distribution has increased since and will continue to increase[2]. That means that Apple does not need to stretch much more than it already has to get the additional growth from un-penetrated markets. We know that this market is still measured in the billions of users. The demand is there.

Secondly, this is interesting from a competitive point of view. When competitors like Microsoft claim that Apple left open an opportunity by not launching a new iPhone “5” they are not looking at the world through the lenses shown above. From their point of view each new phone sold must come from their installed base or non-consumption.

But they don’t have any installed bases over 2 years old looking to upgrade. There are few Galaxy users who are yearning to upgrade since they just bought their first units. There are no Windows Phone users (and no Windows Mobile users) who are ready to upgrade to Mango. Since they don’t don’t see the world through upgrade “lenses” they see their marginal buyer as somebody who might have bought an iPhone 5 because it was the latest and the greatest in terms of specs or novelty.

However they cannot be hopeful that any existing iPhone buyer will switch because they know the satisfaction scores are above 90%. They also know the legendary Apple brand loyalty that keeps Mac and iPad and iPod users glued to their devices. They are also aware of the moats of iTunes, iCloud, hundreds of installed Apps and iMessage all designed to preserve Apple’s customer base.

Competitors have none of these things. They don’t have upgraders, or switchers to target. They can only target non-consumers. There their odds are better but Apple’s are at least as good.

Notes:

1. The 140 million target for next 12 months is probably well above consensus. It assumes a growth rate of 84%. I’ve seen a few estimates where the growth is forecast at less than 30%. If we are to believe the analysis above, the consensus begins to appear catastrophic.
2. Apple’s distribution measured as number of carriers and countries covered is still about half that of RIM and about a third that of Nokia or Samsung.
• I’ve learned over the past few years to take conservative future estimates of Apple sales with a shaker of salt. I predicted 10M iPads in the first 12 months, which at the time was a VERY high estimate, and even that was destroyed. I also think we’re just starting to get to the “mainstreamization” of the smart phone, and we know which vendor probably stands to gain the most when it comes to appealing to the mass market. I think 140M could be doable, especially with the free 3GS — we’ve never had a free iPhone before, and it’s tough to say just how big an impact this could have. Same goes for Sprint in the US, and a few other new carriers of note internationally.

• Christian Brendel

Totally agree, Nick. Plus: Apple’s got amazing growth rates in China and that market is huge

• Tatil

Apple does not really do mass market though. They compete in the relatively high priced, high value segment. Android is better positioned to take advantage of the mainstream market, where price plays an important role. I purchased an Huawei Android phone at about 1/3 of the price of 3GS today without a contract for a cousin. It was not as good as 3GS for sure, but if that is the most you can afford, that is the best you’re gonna get. That is a great market for Huawei, a better opportunity for it than it is for Samsung or Nokia. They do not have to sell an enormous volume of smartphones just to keep their marketshare for all phones that they used to have. Besides, the disruption is a good opportunity for them to get into the rich world markets.

• Apple does do mass market. They did it with the iPod for years.

But more importantly segmenting by price can be very misguiding as a strategy. Value is all relative. If a product can really help you then you will find the money for it. The trick is to develop and communicate a product in a way that makes it worth buying.

• Tatil

I am aware of the difference between price and value. I really enjoy my 3GS. It is more useful than a laptop for me and I didn’t mind extra for it over the cheaper alternatives. In some sense, it already saved me money by making a MacBook purchase unnecessary.

However, if I am not mistaken, the cheapest iPod with a screen that can play videos is sold for \$150. That is the same price as an entry level Android phone. That may be a large market, it may even be called mass market in the rich world, but it is still fairly high end in a global sense. That in no way makes it a bad strategy, but it makes it very unlikely that Apple will offer \$100 iPhones without contract.

• Yes, you’re right. Apple will not sell unlocked iPhones in the near term at that price point. But it’s early still. There will be more iPhones and more devices that will address large markets.

What I would point out is that if you look short term, markets seem solid. If you look long term they seem fluid. Think about mobile telephony in general. Twenty years ago it was something only for the wealthy, even super-wealthy. Today it’s for everyone, even the poorest of the poor. Yes, prices have come down, but analyzing the budgets for poor consumer in the 1990s would not have uncovered “mobile phone and service” allocation and thus a manager would have to conclude that there was no opportunity. The conclusion was that the market would total at most 200k users.

So why would anyone strive to build phones for the masses?

I don’t know for sure, but I don’t think Apple is ignoring the opportunity. They will not build directly for that market but they will build products that will lead the market to them.

• unhinged

It’s also worth considering whether or not Apple has decided that the replacement of feature phones with smartphones has reached the point where it is now able to leave the older phones to soak up that momentum and concentrate on maintaining or increasing its lead in smartphone market share. Siri will be the new standard for smartphones demarcating the high end; you will have “regular” smartphones where the Apple devices are at the high end of that band, and feature phones will be the low end where Apple doesn’t play.

Is Apple trying to segment the existing market to carve out a niche where Android and/or Microsoft have no presence and have significant barriers to catching up?

• Kizedek

What is this “‘Android’ is better positioned”? Android is the OS, how is it positioning itself? Google positions Android.

Then you mention two separate handset makers using Android on some of their phones. So now we can talk about how they position their products in relation to the way Apple positions it’s products. Sure, Huawei and Samsung have cheaper phones. Horace has talked at great about this. Their feature phones are gradually being replaced by smart phones — in as much as the phones now run Android instead of a less sophisticated OS. There is still some debate about exactly how smart some of the phones running Android actually are, or what smart jobs their users may actually be hiring them to do.

So, is the “great market” for Huawei really much different than the non-consumption market for iPhone? For the feature phone users actually interested in converting to a smartphone, it is as Horace says — they are ging to be looking at what they need the phone to do, and make a decision based on that, and a bit higher cost would be worth it. Why get the cheapest Android if it is pretty much just replacing one feature phone for another?

If I was looking to simply upgrade or replace my MP3 player, yeah, an iPod Touch is a stretch. But for a while my iPod Touch was my only mobile device — it was my PDA, my laptop, my file system, my communicator (email and Skype), reference library, entertainment and education for my kids, etc. If you look at it that way, then a couple hundred dollars really isn’t a significant barrier.

So if you have defined this “mainstream market” as the market that doesn’t want or need a real smartphone like the iPhone, then yeah, you could say the iPhone isn’t for that market by definition (like saying a people carrier isn’t positioned very well for those who really just want a compact electric car for driving around town). But I think the message about the jobs you can do with the iPhone will start to get out and make a difference.

• Tatil

Sure, it is a bit pedantic, but yes, you are right it is not the Android that is positioned, it is the Android ecosystem or Android phone manufacturers.

Yes, the market addressable by Huawei’s business model is larger (in volume) than the market Apple is playing in. Regardless of whether we call them smartphones worthy of the name, there will be many people who only have the budget to replace their feature phones with one of these. They still will get more done with them than they can with just a feature phone and they cannot justify a higher price, as even an iPhone is a luxury, more or less an entertainment device. iPhone could still make more profit out of its smaller volume than everybody else combined, but in the end not all of the 1.5 billion annual phone sales is in play for Apple, at least not at these prices.

• Dwayne

Another observation: Looks like Apple still is selling more 2+-year-old iPhone 3GS models each quarter than the best quarter for the original iPhone. Amazing.

Yes because most of what we read is ” Americentric” which means that Americans are hesitant about a IP5 or IP4S when must of the world is still dreaming with a 3GS, people in India or Cambodia or Colombia etc has no \$300, 400 or 800 dollars to buy a IP4 in a contract model.

Is strange that (in American point of view) Apple is still producing the 3 model which I can bet sells just a few in US

From my point of view the biggest seller in a global base the next 2 years will still be the old reliable 3 model.

Rgds.

• I really like your analysis here. Especially that PD1 and PD2 yield so similar results despite coming from different angles. I am very curious if the consensus will turn out as catastrophic as it appears. I myself was a late adopter of an iPhone 3G. I’d like to take you up on the PD1/2 being starting points for debate. Would you mind running a PD3 which starts ‘high’ (let’s say 90% in Jun-09) and decreases slower than linear to the same figure you have in PD2 in Dec-10? Thank you!

• A linear PD from .9 to .3 over the time span yields about 33 million units. The reason I put a low number in the really early (June 09) time frame is because I think most of those buyers have already switched into the iPhone 4 by now. But it’s a good way to test the assumptions.

You can also see the early/late adoption behavior in the normal distribution. Basically, the early adopters will be upgrading early while the mainstream will adopt about when their phones “get old”.

• Thank you, Horace. Impeccable as always.

• Anonymous

Wonderful analysis Horace. You take a reasonably optimistic and a reasonably pessimistic POV (which are actually both conservative- which adds to your point) and take those as basically known numbers- the low and the high of how many 4S will be sold. You then break down what Apple has to do to get to your prediction and compare it to the competition and what they have to do. You make a very logical argument that Apple will grow next year AGAIN at >80% rates without actually much more effort.

Horace, in addition you could take into account the new iPhone 4 8GB and the iPhone 3GS free with contract (won’t sell as well in non-subsidized countries/carriers). I believe this adds even more growth in terms of units of iPhone *(any generation) sold.

Unfortunately, on a financial sense AAPL will still not grow quite at those rates. Its P/E will drift a little downwards because people believe in “the law of big numbers” and therefore the bigger AAPL gets the less likely it will ever double again.

• Anonymous

Nick, good point

• kevin

Excellent analysis once again.

Because people buy cellular phones so often (relative to other consumer electronics), it is super-important for companies to keep their customer base from “defecting”. Apple understands this, as can be seen in many ways:
1) consolidating their R&D efforts to develop a single best iPhone at any given moment, focused on generating the best customer satisfaction ratings,
2) an ecosystem that is linked in multiple ways (iTunes and AppleID, now iCloud, iMessage, etc), to other user devices with different form factors/jobs – iPad, AppleTV, Mac (to a lesser degree though I expect it to become more linked), and even Windows PCs, and
3) having great customer service, especially at Apple Retail Stores.

• It’s great that you bring up customer service. I was a PC user since DOS. As the PC ecosystem grew, I never felt part of a community. If software or hardware didn’t work there were often many companies to sort through…I spent many frustrating hours learning about video drivers :-). On the other hand, PCs have always been able to solve my techno challenges in an inexpensive and fairly official way – if not impersonal.

Then I started buying Apple devices. I’ve “broken” two of my iPhones. A *small amount* (HONEST!) of water got inside. Nothing could be done – but just talking to the guy in the Apple store made me feel better. While I vented, I was able to see sparkly new things to turn my attention to.

Then I bought a MacBook Air. In less than a year, the monitor flaked. It was a day before my vacation. I can’t go on vacation without my laptop. So I go to the Apple Store. They send it off and it arrives at my vacation spot before they said it would! The bottom line – I was treated so much better than I ever was with PC devices.

Then I started developing on iOS…and wow – what a difference in the community! Everyone helping each other, sharing data that on PCs was considered more confidential. It is much more of a feeling of working together to make “things” (software, whatever) and people better. Yes, there is competition – but a lot is shared.

And then there was the fart app for the iPhone. Just that it was there made me think – hey – this thing is kind of more human than other techno stuff.

(Horace – thanks again for a wonderful post).

• Christian Brendel

As always: excellent analysis, Horace! Looking forward to your probable next post on the second market for the 4S (smartphone “non-consumers”) and how the additional 104m devices needed for the 140m target can be sold there. Too bad we have to focus on US market data for the largest part as the majority of the growth is probably going to come from Asia / China.

• Although true about Asia as a bigger market, the US is still mostly unpenetrated. Until now only two carriers could sell the phone. Apple still has not reached maximum addressable market potential in the US.

As of August there were still 150 million US consumers who did not use any smartphone. Given current trends, about 30 million will buy their first smartphone next year (probably more).

Last year Apple gained over 11 million new users in the US. I don’t think it’s unreasonable to assume they will get 15 million more next 12 months.

• Christian Brendel

I agree. But that still leaves us with 89m additional phones to be sold elsewhere. 🙂

• I’ll take a run at the non-consumption market in another post.

• Anonymous

Nice work Horace, Comes pretty close to my back-of-the envelope calculation in the previous thread – of 40million upgrades. At any rate it will be interesting to see the Q3 figures in a week or so.

• Trent

Horace,
I’ve been a long time reader and appreciate your insightful analysis. A couple of questions that I had:
What is the current worldwide smartphone base as a percentage of the overall 1.5B mobile phone users?
How quickly are we seeing a worldwide shift from non-smartphones to smartphones (growth rate)?
Thanks.

• 1.5 billion is the number of phones sold each year. The total user base is somewhere above 5 billion (At the end of 2010 there were 5.3 billion mobile cellular subscriptions world-wide. I would not be surprised if we are close to 6 billion by end of this year).

Smartphones sold in the 12 months ended June were about 380 million. Growth is between 50% to 80%.

We don’t have good stats on penetration of smartphones but a good proxy is 3G subscriptions. That number was about 1 billion at end of 2010 so around 20%. I expect it will reach 50% in less than 3 years.

• Trent

• Anonymous

Is there any consideration in iPhone production for warranty repair/replacements? I see a lot of folks in AAPL getting refurbs. Also, considering the volume of ’09-’10 iPhones, what percentage did you attribute to off-shore leakage where iPhones never entered carrier use-of-intention but leaked to non-iPhone markets? -RJ

• These are units shipped. If phones are returned and re-sold I don’t think Apple would count them twice. Some are scrapped but that’s probably within the margin of error.

As far as sales through secondary markets, it does not affect the math because they are still units sold/shipped. The model above is world-wide irrespective of channel.

• Joseph Moran

Horace, there’s probably a sizable group of people like myself who have an iPhone 3G, but are only just now upgrading. Relative to the number of 3GS owners, it’s not as big an upgrade pool, but your probability curve should really extend out to cover 3 years, rather than 2. It’s not a given that just because the 2-year contract has ended that a person will immediately upgrade.

Some of those upgraders will be people who decided to buy a 3G close to the 3GS announcement, so their contracts didn’t end until this past summer (at which point they may well have decided to wait on the 4S announcement, having learned about Apple’s yearly update cycle by now). Others will be folks like me, who bought their 3G on Day 1 but for whatever reason (finances, other commitments, satisfaction with the 3G in 2010, etc.) chose to wait one more year before upgrading.

I’d love to see a PD 3 line that goes out 3 years to cover this more-likely-than-you’d-think upgrade pool. Would be very surprised if I’m the only person who chose to wait 2.5 – 3 years to upgrade instead of getting it right at contract expiration.

• Walter Milliken

I don’t know how common this is, but neither my wife (iPhone 1) nor myself (early iPhone 3G) really felt the need to upgrade until the 4S. This was not driven by financial considerations, but simply the fact we didn’t see a strong reason to buy the intervening models — even the Retina display wouldn’t add that much for us. iOS 5 and Siri are what is driving us now, plus the fact that our phones are finally showing signs of age. But the early models were “good enough” until now.

• Anonymous

I like the non-smoothed graphics… They feel like console-era market anaysis ^^

• Dshim

A few points:

I would say there is a sizable market of iPhone 4 users who will upgrade. For myself (outside the US), I know I can sell my iPhone 4 in the second-market and get a decent return. So the extra \$200 or so that I need to pay to upgrade is not a huge barrier. For the promised improvements in the camera, battery, speed, and SIRI, it’s worth it for me. And, I suspect, for a lot of other users out there.

So in fact, there are three categories of users:

2. Early upgraders (1 year or less)
3. Non-consumers

• Anonymous

The elephant in the room here is Siri. If Voice/AI is as good as it appears in the demos, then EVERYONE, including fairly recent iPhone 4 buyers will want to upgrade. Of course this is just my hunch but Siri could be a bigger draw than the original iPhone touchscreen interface. Remember that the primary sales mechanism for the iPhone 1 consisted of someone seeing a random guy in a bar swiping at his new iPhone and then that someone ran like mad for the Apple store to get one for himself. Repeat a million times. I think the Siri effect will be similar.

• Anonymous

This is it exactly! Those who were disappointed in the 4S form factor because nobody would know they had the newest iPhone… They [ only have to be overheard] telling Siri to set an alarm to gain the notoriety they desire.

Talking to Siri is iconic and will mean to the SPS (Smart Phone Snobs) just what the pinch gesture meant to the iPhone 1 (wannabe owners)…

Mine comes on Friday — Siri and I have much to discuss 😉

• Anonymous

Difference between the two is a person walking down the street working a new touch-phone back in 2007 looked like he’d just beamed down from Star Trek.

A guy walking down the street talking to his phone as if it’s a person still looks like he may have escaped from a nearby home for the bewildered.

• Anonymous

How would it look so different than someone talking on their phone to another person? I have some friends who use their voice actuated Droids for certain tasks and it takes me a minute to realize that they aren’t on a call.

Besides, I doubt that Siri queries would appear much like the ramblings of a lunatic. Instead I’d imagine a series (Siri’s?) of short statements lasting less than a minute.

• Anonymous

So at best people won’t notice the siri users, and hence won’t race into the store to get their own personal cyber slave.

Don’t get me wrong, I think Siri is a potentially great feature, I just don’t think it’s going to be a huge viral marketing effect – more of a sleeper hit.

• Anonymous

Well we shall see, won’t we Eduardo? I must admit that I have a bit of bias in this discussion. As an old fan of science fiction I’m looking forward to conversational computers.

But I don’t think that Siri must be either a huge viral thing or else just a sleeper. I predict the following:
a: It starts out as a hit with just the cognescenti
b: Apple puts some kick-ass ads on TV
c: Siri becomes a runaway locomotive, slowly gaining speed, as people are exposed to friend’s iPhones.
d: Over time, the world gets changed.

• You both might be underestimating the obnoxious types that feel compelled to show off their latest Apple goodies. (I used to be one myself and I still am once in a great while.) Yeah, it’s obnoxious behavior engaged in by a few, but when it comes to hands on demos of revolutionary technology like Siri, a small amount of people can do a great deal of evangelism.

On the other hand, if it’s just a bigger screen, it’s a big yawn.

Siri looks to be something that’s going to wow. And I think for many of us that are currently aware of it, our minds are racing with the possibilities: What has been shown in the demos might be the tip of the iceberg. It’s early days. (It remains to be seen how open ended Siri will be.)

• Secular Investor

Eduardo

Au contraire!

One of the first comments I read was by a Chines guy complaining that he wouldn’t buy an iPhone 4S because it didn’t look different so nobody would know he had the latest model!

But he didn’t think of the bragging rights of being able to speak to his iPhone 4S. Obviously he would hold it differently and make sure everybody knew he was talking to Siri! LOL!

• Secular Investor

delmiller

I agree.

I know its only anecdotal but my plan was to upgrade to an iPhone 5 (because of the bigger screen) and pass my iPhone 4 to my wife. However when we were watching the presentation my wife and son really perked up and became animated when they started demonstrating Siri. They are not very computer literate but they really were taken with the idea of an intelligent voice activated assistant.

They both decided they wanted an iPhone 4S, so did I. So instead of one iPhone 5 we will be buying three iPhone 4S.

I haven’t yet spoken to my other kids but I suspect they too will want to upgrade to iPhone 4S ASAP

Siri also has an obvious appeal to motorists allowing for hands free use – a legal requirement in most parts these days.

• Anonymous

Yeah, I bet that your experience gets repeated. A lot.
An interesting aspect of a hugely popular Siri would be that it represents another step away from the browser based Web…and, incidentally, Google. Instead of searching for a term and then digging through websites, you just ask for some information and there it is. Between Siri and the App Store, the browser might have a diminished impact on mobile computing.

• publiclee

Ah Siri! My dyslexic wife watched the video just once and started pestering me about how it will make my life better if she got one. Our 3G’s have lasted a lot longer than I expected but I’m ready to swap for the 4G.

BTW does anyone remember seeing/hearing similar demos for the General Magic device decades ago? I believe it was a server based service but nonetheless the intent was precisely the same.

Wikipedia reckons MSFT has the patents to that stuff now. http://www.wired.com/wired/archive/2.04/general.magic_pr.html

• The probability distribution accounts for this. In PD2 scenario at least 10 million iPhone 4s are being upgraded in the next 12 months.

• Tristram

As usual, a wonderful post.

I haven’t noted any conversation about the possibility that although consumers may buy in the numbers you project, Apple may prove unable to produce enough product to meet that demand.

I have a friend who is a big fan of Apple and as key hardware designer for Amazon products, he is most amazed by Apple’s ability to produce enough product to meet their demand. Apple’s hardware really pushes the limitation of production, especially production at the levels they require. Apple’s consistent demonstrated ability to produce it is awe inspiring (and almost unbelievable to many hardware techs).

Horace, I don’t know if your experience reaches into hardware production, but I would enjoy an exploration on the possible limits Apple might face here.

Another angle is the possible competitive opportunity of a smaller provider (everyone else?), allowing them to produce more ground breaking phones (tablets, etc), simply because they wouldn’t need to produce in the 10s of millions, thus allowing them to use leading edge tech. Said another way, Apple probably rejects some new technologies simply because it is not yet possible to produce it in the quantities that they would need to meet their production needs.

• Anonymous

The problem for small providers is that there’s no point adding a super new component if the software isn’t there to take advantage.

The other players aren’t integrated, so they can’t ensure that new hardware features actually make a difference to the user experience in the same way that Apple can.

• deV

Apple is using mostly hardware recycled from previous iterations of iDevices. This might be the wrong time to wonder how they can keep up. It’s simple: use the same hardware you’re already producing.

• Canucker

If you think the circuit boards in the iDevices are identical (e.g, A5 chipset in the iPad vs the iPhone 4S) you should check out iSuppli’s tear-down. Nevermind the new GSM/CDMA chipset and the switching hardware for the antenna and the new camera sensor and lenses. Aside from all that, its just the same hardware. Sure. And Android and Windows Phone 7 device components aren’t commoditized? I agree its easier for Apple to ramp up when they are not continually releasing new iterations and form factors and clearly their current ramp up is more successful than previous ramp ups. They can also count on selling tens of millions rather than one or 2 million which must help in terms of supplier continuity.

• Anonymous

This is what i get from iSuppli’s teardown:

Same display
Same touchscreen digitizer & controller
Same battery
Different camera module
Same storage (except 64 GB, which uses two existing 32 GB chips)
Same antenna (?)
Same (iPad) processor (clocked down to 800 Mhz using software)
Different SDRAM
Same audio codec (?)
Same baseband processor (key part of cellular radio)
Different RF front end
Different Bluetooth/WiFi module
Same GPS
Same accelerometer
Same gyroscope
Same eCompass
Same microphones (?)
Same proximity sensor (?)

I could list all the external features related to the form of the device and it’s trim, but it would be at least twice as long as this list. And even then it would be incomplete. Not changing the form factor allows virtually every piece of silicon, plastic, metal, glass to be exactly the same as it was.

And historically, Apple has had supply issues with primarily screens. The screen is identical to the previous model. Everything else is fairly commodity except the processor (which Samsung should have no trouble supplying) and the camera.

• Anonymous

Horace, you state:

“Apple’s distribution measured as number of carriers and countries covered is still about half that of RIM and about a third that of Nokia or Samsung.”

Do you have any data on Apple’s distribution vs. the field measured as a number of subscribers? In other words, are the remaining carriers on average much larger or smaller than the existing ones? Obviously China distorts the average, so maybe you could give the answer both globally and ex-China (assuming public records actually can answer the query).

The follow up question would be percentage of global 3G subscribers reached by iPhone.

• Alan

Horace, it would be interesting to apply your PD1 and PD2 to LAST year with the benefit of historical iPhone4 sales. The most interesting would be to compute the split between upgrades (according to you PD rules) and non-consumptive sales. If the split is 25%/75% then that bodes well for your estimates here.

• Mark212

According to AppleInsider, Gene Munster is predicting sales of 104.4 million iPhones in fiscal ’12 and has some interesting assumptions about the current iPhone owners’ upgrade path.

• Don’t believe these forecasts. They’re not designed to be believed. Sell side analysts don’t publish what they believe. Their priority is not an accurate forecast but an accurate rating.

• Canucker

Makes me wonder what Microsoft and Google engineers thought when they saw real-life demos of Siri. They thought they had voice activation checked off and they do. But Siri is a personal assistant that makes voice activation look/sound like a kid on ice skates for the first time. It’s tech that anyone can use. It doesn’t force you you use an artificial interface such as a keyboard or trackball. Virtually no learning curve. This is not for geeks or nerds, this is for the rest of us (OK, I am a nerdy geek, but you get the point). Moreover, this is Siri 0.5. It is going to expand and learn and embrace and develop. Imagine Siri 4.0.

I’m not sure of the naming. It’s supposedly related to SRI (Stanford Research Institute) where it was initially developed and spun out of. But it’s Iris spelled backwards… Maybe Apple was inspired to name the retina display after seeing what Siri had accomplished. Maybe I’m being a geek.

• Anonymous

More likely the almost extinct afro-asiatic language:
http://en.wikipedia.org/wiki/Siri_language

• deV

Android’s pre-existing voice technology was not for “geeks and nerds.” The microphone icon is in all the search boxes and on the keyboard in the same place that Apple copied. Useful for anywhere that requires you to type anything. I used it for a little while until I got the hang of on-screen keyboards, because it was much faster than I could type. But talking to your phone is not a natural thing to do in most real-life environments. So as soon as I got better at non-tactile keyboards I stopped using it.

Siri may be more valuable than that was, but at least get your facts straight about the technology that has existed for over a year. If I wanted the marketing spin I’d watch the keynote.

• Canucker

Dictation is only one capability of Siri. I’d like to know how you make phone calls without actually talking to your phone…..

• Secular Investor

Horace,

Another great post.

I had been wondering about the sales rates of different iPhone models, so I found your first chart most interesting.

However there is one thing that puzzles me. I have read various reports that the best selling Smartphone in the US in Q2 was the iPhone 4, followed by the iPhone 3GS. Is that consistent with your chart?

See for example the following link:

http://www.macrumors.com/2011/08/22/iphone-4-and-3gs-rank-as-best-selling-u-s-smartphones/

“Here are the top five best-selling phones during Q2, via NPD’s Mobile Phone Track service:

1. Apple iPhone 4
2. Apple iPhone 3GS
3. HTC EVO 4G
4. HTC Inspire 4G
5. Samsung INTENSITYII ”

• It’s not inconsistent. The data I have is global. We don’t know what the split of 3GS/4 was in the US vs. WW. It may be that there is a higher probability of 3GS sales in the US. It all depends on how its promoted.

• Secular Investor

Talking of Siri, what does Siri say if you say

“Who are you?”

“How old are you?”

“I love you” – Clue Siri is jealous and has a sense of humour

Also demo shows you scan search with Google.

I can see we are going to have some fun with this.

http://www.macrumors.com/2011/10/11/hands-on-iphone-4s-video-or-what-happens-if-you-tell-siri-i-love-you/

• Belz

Or ask it a joke, or ask are “you a boy or a girl” or when I finds an “escort” for you Siri ‘s sense of humor shows. ( at least it does on soon to be useless app)

• Horace, thanks for your great work.
I have one question though. All this contract hypothesis is valid only for US market. There is no such contract in Asia & Europe (I am not sure about Europe).
What do you think about that? Thanks.

• Most (though not all) phones sold in Europe are also sold as part of a contract. This is also true in Japan and to some degree in China. I don’t know what the percentage is globally but I think more than 50% of total iPhones sold are sold as part of a service contract. Tim Cook makes reference to this frequently during earnings conference calls because he’s always being asked what he will do about addressing prepaid subs.

• arvleo
• Compare the methodologies. Which seems more plausible?

• Timothy Morey

Horace, do you have data on current iOS users who switch to Android? Your assertion that the 90% customer sat scores from iPhone will minimize defections seems intuitive, but satisfied customers leave to try new things. I saw some survey data about a year ago which showed that 30-40% of iOS users were open to trying Android.

The moat strategy is a good one, but I’m not convinced it is that strong. There are iPhone users out there who love their phone for what it is, but don’t use many apps (or only free apps), and don’t have their music on iTunes but use Pandora or other services instead.

• There are indeed people who switch platforms. Millions perhaps. But the total is far great. We don’t know exact numbers, but we have some measures of loyalty. As in the number of iTunes users, the number of songs downloaded, the number of apps downloaded (including per device). We can’t correlate this to how many switch, but I’m comfortable with 90% retention for iOS. There are surveys that also try to predict this but I don’t trust surveys which try to measure purchase intent. Buyers often make up their mind in the last few seconds before the purchase and change their minds even long after.

• GeorgeS

“…those having purchased an iPhone two years hence…”

“Hence” means in the future. It should be “two years ago.”

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• Stefan Sidahmed

Horace,

In light of today’s iPhone numbers, is this a case of “we should have known”? I was caught being way off, but as soon as I heard the number, I wanted to kick myself. Should have known better.
All those who bought iPhone in Q4 2009 and were looking to upgrade, probably held off, plus some of those from Q2 2009.
Will this cause a double kicker for the Christmas quarter and rocket iPhone sales well over 30M? If I do a simple model, I can justify 35M (don’t know if they can make that many)

Can you use your iPhone upgrade model to look back at what we should have expected given a pending iPhone release 1 quarter later than normal? What are the implications for Q1 2012?