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"Everybody has got a smartphone"

… says UBS analyst John Hodulik, as quoted by the Wall Street Journal.

No they haven’t.

According to the latest comScore survey data, 98 million Americans above the age of 13 don’t use a smartphone as their primary phone. That’s 41% of US mobile phone users.

What’s more, 2.5 million more people first started using smartphones in the three month period ending May vs. the three month period ending in April.

The switching rate to smartphones is shown below:

Screen Shot 2013-07-17 at 7-17-10.32.09 AM

It shows the number of new-to-smartphone users who switched every week. It can be considered the “speed of adoption”. The latest figure is 583k/week, above the 572k/week average maintained over the last 41 months.

[I also added a three period moving average which shows a seasonal change in adoption. I also added a vertical line showing the point when 50% penetration was reached (August 2012).]

The switching rate by platform is shown in the following graph:

Screen Shot 2013-07-17 at 7-17-10.38.54 AM

The data shows that churn between platforms (except for BlackBerry) is still negligible and that the majority of user losses can be attributed to non-smart devices.

To summarize, with penetration now at about 60% in the US, the rate of adoption of smartphones is not slowing in any perceptible way.

So not only is there no saturation, but there is no slowing of adoption of smartphones in the US, the most penetrated large market.

Globally, the penetration of smartphones is less than half of that in the US. About 4 billion people are about to switch.

Of course, they may not be willing to switch to what is currently offered to them in the market, but then again, the billion or so who adopted iOS and Android phones did not switch when the alternatives were BlackBerries, Palm, Symbian and Windows Mobile devices.

  • Jordan

    And even still, of those people, which are using a smartphone as one instead of a feature phone?

  • http://sumocat.blogspot.com Sumocat

    Not everyone, but it’s getting there. Anecdotally, my mother got an iPhone 5 last week and Facetimed me yesterday to show her uncle, who was thinking about upgrading. I think the only major U.S. market left for smartphones is the over 60 crowd, and that will be a tougher climb than the younger ones.

    • professortom

      My mother just replaced her Droid X last week with an iPhone 5. When she bought the Droid X, she walked into the store to buy an iPhone and got sold the Droid. She’s claimed to be happy with that phone, but I know secretly she was making the best of a bad situation.

      Additionally, my brother who just turned 18 also got an iPhone 5 last week; this is his first smartphone.

      • Jessica Darko

        I suspect most people buying android phones think they’re buying iPhones.

        To those of us in the industry this may seem odd, because it’s very clear to us the differences…. but most people aren’t paying that close attention.

        They walk in and say “i want the new iphone” and the salesman takes them over to the samsung counter and hands them the latest galaxy and says “here you are”.

      • professortom

        I take your point.

        I think my mom is quite dense, but I’m not sure she’s that daft. In fact, her stated reason for purchasing Android vs. iPhone was “free apps”.

      • Kizedek

        I’m sure she isn’t. My neighbour was asking me about phones the other day as he was interested in a deal he heard about for a Galaxy III. He thought that you couldn’t have Google Maps on iPhone, and therefore no maps at all.

        And that’s the frustration: out and out lies and misinformation used to sell Android phones. I don’t know a single Apple user who has to tell their friend: “Don’t get an Android ___ because [insert some outrageous lie here]“. (But I am sure Obarthelemy can clue me in).

        Rather, we tend to say, I think you will be happier and more satisfied with an iPhone, for X, Y, and Z reason, especially if you want to do X, Y, and Z with your phone. This is my experience…” …We do say that, don’t we? ;)

      • Silver fox

        You shouldn’t speak about your mom like that

  • Jessica Darko

    Further, I argue that all of the people who have android devices do not have smartphones. This argument is buttressed with the fact that android users do not really browse the web. Looking at feature phones, which have had web browsing capabilities going back into the 1990s (rudimentary as they are), I believe the amount of web browsing done on android phones is consistent with the amount of web browsing done on feature phones. This is why the iPhone dominates web browsing stats from mobile devices.

    Either that or android is an utter failure with very few phones sold. There is no data to contradict that hypothesis, since no android manufacturer publishes the number of phones they sell (like Apple does every quarter in audited SEC filings) and this can be taken as an admission that their sales are abysmal.

    All of the android phone “sales” numbers we see, constantly trumpeted on the web, are from PR Firms (who often portray themselves as analysts) making up numbers to try and promote the “success” of their clients. Since it is a PR firm making up the numbers, the company itself is not liable under shareholder protection laws for putting out false information. (This is why google can get away with its increasingly ludicrous “Activiations” number, which people will continue to believe is relevant until it stops growing or google is “activating” more phones than there are people on the earth, each and every day, which will not be too long given the rate at which they are increasing the rate of growth of this number.)

    Something is really rotten in the state of android, but nobody wishes to smell it.

    • Christian Peel

      A provocative comment: “I argue that all of the people who have android devices do not have smartphones.” I love the arguments! Where’s your blog?

    • https://twitter.com/#!/azulum azulum

      Equating terrible Java applets to software written for the Android SDK and NDK proves that you haven’t a clue what you’re talking about. Do some real research on the underlying technologies before offering ridiculous conclusions.

      • Idon’t Know

        Prove him wrong instead of writing snarky comments because you have an Android phone and don’t like what he says.
        The data shows Android phone users are’t many orders of magnitude behind iOS users in accessing the web, buying apps, and other activities. Most people buy Android devices based on cost. The price of even top tier Android phones drops quickly and it’s quite easy to get one free. So that’s the demographic they get.
        He didn’t say anything about java applets he just said java. The older phones had a JVM and so do the newer ones. Dalvik is a much better jvm than in years past but running code through a runtime is and will most likely always be slower than native code, require more memory and cpu, and be lower performing. Same as with JVM’s on servers which I happen to be something of an expert on.

      • https://twitter.com/#!/azulum azulum

        Time sink. The truth is complicated and cannot be adequately boiled down to bullet points.

        That said, the need for higher performance on Android for apps to run well (GC and all that) says nothing about whether they are smartphones. Such a fallacious leap in logic means one of two things: partisan bias with intentional blindness to the facts or good-natured but misinformed cluelessness. I asserted the latter because at least it’s honest.

        I expect great comments on this site with well reasoned analysis on this site. I don’t expect comments that offer opinion as a basis of fact:

        I believe the amount of web browsing done on android phones is consistent with the amount of web browsing done on feature phones.

        If you look at the difference in use between iOS and Android, it may just boil down to socioeconomic factors. Consider, you are poor and you don’t have access to wifi, but you have an “Android” with somewhat slow internet access. Guess what — internet consumption falls when the metaphorical pipe is small and/or expensive.

      • Kizedek

        “If you look at the difference in use between iOS and Android, it may just boil down to socioeconomic factors. Consider, you are poor and you don’t have access to wifi, but you have an “Android” with somewhat slow internet access. Guess what — internet consumption falls when the metaphorical pipe is small and/or expensive.”

        It’s not that iOS users surf the web more than Android users. The stats are not about the rate or amount of use PER phone user… as though 100Million iOS users use the internet 3 times as much as 100 Million Android users.

        No, it’s that in all mobile internet usage, period, iOS comes out overwhelmingly as top agent, time and again.

        Now, considering that an Android phone is supposed to be in the hands of Billions more people on the planet, in just the same areas as iPhones and in all the areas where iPhones are unavailable or not so practical and where Androids represent perhaps the ONLY way that people access the internet, then why is this?

        Dealing with this sort of thing, I just read a report on Ben Evans about China Mobile usage and interpreting stats from China: http://ben-evans.com/benedictevans/2013/7/17/china-mobile. One quote: “The implication of this chart is that a little over 30% of Chinese internet users only have mobile access, and close to 80% use mobile at some point.”

        This implies there are hundreds of millions of people in the world who access the internet through mobile only. The stats of mobile internet use SHOULD be heavily skewed TOWARD Android in absolute terms. It’s NOT EVEN CLOSE.

        Because the trumpeted activation figures are so overwhelmingly in Android’s favor (without manufacturer data to back it up), your conclusion asks to believe that the “few” iPhone activations are by users overwhelmingly in the position to, or in an area to, overwhelmingly access the internet, all day long, while they don’t do anything else and don’t spend half their time on desktops or laptops, which apparently they are in an economic position to also own and use.

        You ask us to believe that practically no-one with an Android is in the above area or situation; you ask us to believe that no-one in developing countries whose main or only choice is Android rely on their Android device as perhaps their only way to access the internet or do business…

        Well, Jessica’s conclusions would seem quite reasonable:
        Either,
        A) The average Android phone is not quite the “smart”phone that it is cracked up to be (supported by job-to-be done theories and the fact that Android is now the default OS that OEMs put on anything and everything); or,
        B) a heck of a lot less Androids are actually being bought or used than “activation” figures would imply.
        Your choice.

      • Jessica Darko

        You’re responding to a pretend argument he threw in there to make it seem like he’s a reasonable person, when his entire purpose was to attack me personally, by making several dishonest characterizations. Put another way’ he’s a troll and thus investing energy in a debate with him requires an assumption he will respond rationally– but his response to me shows otherwise.

      • https://twitter.com/#!/azulum azulum

        Colorless green ideas sleep furiously.

      • https://twitter.com/#!/azulum azulum

        Your choice. You can’t put the discrepancy all on internet access. At some point you have to conclude that an iOS device is far better suited to smart-use, easier to use, more fun to use, more versatile, more efficient, faster, better value, a better investment, a better use of time…

        Agreed. However, does that make any given Android phone *not a smartphone*? Was not that the thesis of the argument I sought to undermine?

      • Jessica Darko

        I love how you just fabricate some stuff, claim I said it, then characterize me based on it.

        Your refusal to respond to the arguments I actually made shows intellectual dishonesty and cowardice.

        Your dishonesty and personal attacks shows that you have no interest in having a rational discussion.

        I think it’s hilarious you say: “opinion as a basis of fact:” and then quote me saying: “I believe …”. By definition describing something as a belief is not an assertion that it is fact. Which means you’re telling a flat out lie about me, and quoting me proving it’s a lie. Which means you aren’t even caring enough about the truth to notice that you proved yourself a liar immediately upon doing it.

        You are the very definition of a troll. You engage in insult, you lie about what has been said in order to produce even more insults.

        Such profound dishonesty should be embarrassing, but I doubt you have the self awareness required for it. Put another way, I think your mindless hatred and ideology have clouded your judgement to the point where you cannot even sense reality. (or you would have seen the absurdity of your characterization of a statement that starts “I believe…” )

      • https://twitter.com/#!/azulum azulum

        I think it’s hilarious you say: “opinion as a basis of fact:” and then quote me saying: “I believe …”.

        Was that statement not used as part of the foundation of your central thesis: “Android phones are not smartphones”?

        If this were stated as a hypothesis, one to be tested, that would be fine. But posing the question and using that as a jumping off point toward an unverified conclusion another story altogether. It’s an easy mistake to make, and pointing out a mistake does not make one a troll.

        You are the very definition of a troll. You engage in insult, you lie about what has been said in order to produce even more insults.

        Such profound dishonesty should be embarrassing, but I doubt you have the self awareness required for it. Put another way, I think your mindless hatred and ideology have clouded your judgement to the point where you cannot even sense reality. (or you would have seen the absurdity of your characterization of a statement that starts “I believe…” )

        Is the proper way to defeat a perceived ad hominem with an ad hominem?

        {insert trollface here}

        And like I said, this is a time sink.

      • Walt French

        You have the opportunity yourself, if you’re so trained, to show that Android apps are not of the same calibre as iOS’s, but rather more like the dinky little things we used to have on Symbian and whatever my old RAZR ran.

        I’m taking a break from coding right now (using Apple’s tools for a feature I hope to go on all sorts of hardware), and I think I have a fair feel for the differences after having programmed for almost 50 years (including a bit of java). Use of a managed language such as java or C# has been an acceptable tradeoff against expensive programmer time for at least 30 years now, so while there are definite benefits to ObjC to offset its deep ugliness, it’s not a black-vs-white call. You use what gets the job done. In any case, Android offers C routines for performance-sensitive functions; there is some flexibility.

        That’s my 2¢, based on my personal experience. I hope it doesn’t come across as an affront or a challenge; we don’t need those here.

      • macyourday

        Why don’t you use whatever works for you. Whatever “technology” the majority of droids use, they certainly feel like like they’re running last century java on a raZr. I still contend that the only people deliberately choosing droids are nerds that loath apple or the gormless that believe the incessant cacophony that apple is doomed and their iphone will not be supported long enough. All other buyers either believe that they are buying an iPhone, are told that the device is as good as or better than an iPhone, it’s “cheaper”/better value than an iPhone or they just want something that acts as a “normal” phone that makes calls because their old cellphone has died again (almost every “normal” cell phone I’ve had the misfortune to purchase over the last twenty years has failed at least once).
        The purchasing choices made by my non-nerd friends, nerdy friends, colleagues and acquaintances would support these observations and and I suspect, most of the Asymco readership would have similar experiences.
        I agree with Jessica’s post in case that wasn’t immediately apparent.
        Don’t forget, whatever rumored, proposed or just announced device from apple, is a failure, faulty, copied or lacks innovation and proves apple is doomed.
        But seriously folks, if apple is doomed, there will be a great deal of carnage before we get there, notwithstanding the hot air balloon that is Samsung, which will take South Korea down with it.

      • https://twitter.com/#!/azulum azulum

        As a long time Mac nerd, I enjoy the assumption that I am an Android user. I also enjoy the notion that I may consider Apple doomed. Nice strawman.

      • Jessica Darko

        Translated: “The truth hurts! Don’t force me to witness it!”

      • https://twitter.com/#!/azulum azulum

        Little of what you offered was truth. What you offered was a hypothesis that may lead to some truth with deeper inquiry. So no, it hurts not even a little.

        Was my first comment that sparked this enmity well reasoned and cogently explained? No. I made a mistake in haste, because a refutation of your arguments line-by-line I thought unworthy of my time. It was crassly worded. I apologize to everyone who has to read this thread.

        If you must know how I feel about Apple, you may read this. It may clear up some of the partisan aspersions cast my way.

    • stevesup

      Smart phones are only as smart as the owners.

    • Walt French

      @JessicaD, I’m pretty sure you recognize me as a non-troll but I have to say you’re awfully far out on a limb by equating (implicitly, all) Android phones to feature phones.

      Android phones have a functioning app store with hundreds of thousands of choices, a media ecosystem, and carrier plan support for lots of data, messaging, notifications, etc. You might think those choices are inferior to what you get on iOS — I do — but they clearly distinguish today’s best Androids from feature phones, which lack all three of those features.

      You are of course correct about the Java VM needing more CPU speed and memory, and being subject to balkiness without them. But indeed, high-end Android phones have pretty consistently shipped with higher-speed, multicore CPUs and more RAM than their iOS competition. Again, I think Apple has a better final result, but facebook, yelp and thousands of other apps end up running pretty much the same with a different mix of resources.

      There are indeed some really junky Android offerings and the support disaster continues unabated, years-old Google promises to the contrary. Again, that does not reduce all Androids to feature phones. We’ll have some more data in a few days, but it seems like the Verizon numbers are saying that only the higher-capability Androids, those most competitive with iPhone, are selling well in the US. In Europe and Asia, Android continues to have a large sales advantage even in economically advanced nations.

      This is very faint praise for Androids but there’s no sense in saying that Android sales numbers are terrible or that users are unable to get what they paid for. I don’t think that’ll help us understand the evolution of the market. A much better data point comes from Schmidt saying nice things about Apple lately; a bit of “if you can’t lick ‘em, join ‘em,” I think.

  • BaltimoreDave

    I see a surprising number of 20 somethings who still use feature phones and many of the friends i have in that age range (about 2 dozen people) are truly flat broke and in hard economic times, either unemployed or under. Even then, i would say about half off them use iPhones.

    • mjw149

      And this hits the nail on the head. They’ve nearly monopolized the affluent and old customers and the economy isn’t growing in terms of wages or employment. In fact, the middle class has been shrinking for nearly a decade, low taxes equal low liquidity, low employment, fewer opportunities.

      • Idon’t Know

        Agree and even people with the money aren’t that excited about paying for an upgrade or extending their contract unless they see a really compelling reason to get that next phone.

  • Walt French

    Especially love that last paragraph.

    A quibble, however: I don’t have any sense of the current mix of this, but note that just because somebody doesn’t use a mobile phone as their “primary” phone, but I personally went thru an extended phase where I *HAD* a mobile phone (a Sprint Samsung device) that was unreliable and expensive-to-use enough that I never gave out the number, reserved it for when I wanted to initiate a call despite all. It’s still true that I don’t give out my cell number to anybody who might use it inappropriately, or prefer a wired line for more predictable quality.

    So the competing stats are saying somewhat different things. Again, I don’t know how many people in the bucket of having a smartphone that they don’t consider their primary phone, but it could be quite a few.

    • DarwinPhish

      From comScore: “Data on mobile phone usage refers to a respondent’s primary mobile phone
      and does not include data related to a respondent’s secondary device.” Whether your mobile device is your primary phone or you primarily use a wired line is not a factor.

      • Walt French

        I guess you can parse that two ways, but I seldom hear a wireline phone called “a device.” My read is that it says “we ignore any secondary mobile” (which would be relatively uncommon), because the clear intent is to look at the type of mobile device, assuming that anybody without a mobile device has SOME other phone connection — as what…96% of Americans do?

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  • Vicious Cur

    I believe there’s a correlation between this data and the decline in the PC market. For personal use, many people are investing in smartphones instead of desktops or even laptops.

    • mjw149

      Well, are the phone sales freezing because wages haven’t come back, or will PC sales bounce back if everyone’s phone is “good enough”? That’s the key for this market.

  • handleym

    Like anything you see in the business press, the point of the statement is not be true, it is to drum up customers.

    As more (and poorer) people in the US acquire smartphones, ATT et al are faced with the problem of how to maximize their revenue via optimal customer segmentation. The main point here is that the previous customer segmentation was by voice vs smartphone+data — you could keep voice prices at a certain level to make money from the poor, and data at a higher level to make money from the rich.

    When everyone has a smartphone (or at least that’s the endgame) this customer segmentation breaks down. A company like ATT can ignore this (and see its poor customers defect to someone else), it can lower prices for data (oh noes), or it can figure out an alternative segmentation. The segmentation that has been holding the fort for the past 18 months or so has been LTE vs HSPA. This can be used for a while longer — especially if they can keep the MVNOs off LTE — but I imagine not indefinitely. If they push too hard in this direction, I imagine the MVNOs will pressure the FCC. (Basically the MVNOs are a pressure valve for ATT et al, allowing them to screw over the richer American, while ensuring the poorer American is not so hard-pressed that he insists Congress change things. Given ATT’s attempt to buy LEAP it appear that, in classic Marie Antoinette style, ATT is too stupid to understand this point and may well kill the goose that lays the golden eggs. But I digress.)

    So I would see this as the real sales pitch here. UBS wants to tell ATT, VZW etc that their world is changing and they need to hire UBS to them some alternative ideas for revenue growth. The interesting part of this, for an observer, is the market segmentation angle. There’s plenty of money to be extracted from the upper 20% of America, but how do you do this in a way that keeps the lower 40% of America from complaining to Congress?…

    • mjw149

      I think you’re onto something and in that second paragraph I’d cut you off and point out that LTE just hasn’t been that compelling. It’s a nice value add (I have an iphone 5) but if you’re on prepaid, it’s not a real negative. Navigation works, the web works slowly, and when speed matters, wifi still works, and it’s free practically everywhere.

      • mjw149

        Oh, there are two failures. LTE hasn’t been compelling enough of a hook … and neither have secondary devices – ipads and netbooks never took off as secondary income for the carriers, so they did family share

        Or have the wireless companies really just priced too high with the family share plans? I found the value compelling, but I have a family. How many people on prepaid are just straight up single? Because the postpaid carrier plans really took a turn for the worse this year for individuals, including the elimination of unlimited data.

        VZW and AT&T might have exhausted affluent families in the US. The price can only creep up so far when there’s no wage increases for more than a decade now.

      • Idon’t Know

        Not to you is what you mean. Unless you speak for everyone. I find 3G very noticeable and annoying when I drop down to it from LTE on both my iPhone and iPad.

      • Walt French

        My experience was that upgrading from the iPhone 4 to the 5 significantly changed the experience. Linking thru to a news article from Twitter took two or three seconds, not 10 or 20. Overall, something like a 3:1 effective speedup, and because mobile tasks are much more small transactions dramatically affected by various lags, a huge uptick in actual usability. That’s in contrast to my more intense laptop usage, where I happily plug away on a 2010 machine.

        The carriers can and do charge more for higher functionality, but I’m able to afford it for the bursts when I need connectivity on the go.

    • Chaka10

      Minimal data plans.

  • Chaka10

    The comScore data shows that smartphone adoption in the US has not perceptibly slowed, but it doesn’t say or show anything about where that adoption is happening — at the high-mid-low end or into which platforms. In other words, the data does not contradict the view that the smartphone market is rapidly saturating or has saturated (in the sense of slowing demand from first time adopters) at the high-end, i.e., the end relevant to Apple, the S4, and maybe others.

    Similarly, the data on net user gains for each platform shows negligible churn netted across all platforms, but it says nothing about churn between any two platforms. For example, the data would not contradict the hypothesis that Android has been/is suffering negative churn to the iPhone (in the sense of more users switching from Android to iPhone than the other way around), but making it up from first time adopters and positive churn from other platforms.

    As I have previously posted, a survey by Consumer Intelligence Research Partners (CIRP) of US iPhone purchases in F2Q13 found that only 29% were first time smartphone adopters and another 29% came from positive switching churn from other smartphone platforms (remaining 42% was from loyal iPhone replacement demand). Importantly, this data is consistent into 2012, according to CIRP survey data.

    The analysis below (and see attached) would suggest that analysts may be seriously under estimating iPhone demand for the June quarter.

    In thinking about, and in trying to begin to apply some data to understanding, replacement demand from existing iPhone users, I calculated a “replacement demand ratio” equal to the fraction (as a percentage) of unit sales in the prior 2 year ago quarter over unit sales in the current quarter. I went back and did this for each prior quarter and the results are as follows (references are to fiscal quarters)

    1Q10 — 26.5%
    2Q10 — 19,.5%
    3Q10 — 8.5% (iPhone 4 launched June ’10)
    4Q10 — 48.9% (first full quarter of iPhone 4; *the prior 2 year ago quarter was the launch quarter for iPhone 3G)

    1Q11 — 26.9%
    2Q11 — 20.3% (iPhone 4 CDMA launched on VZ in Feb ’11)
    3Q11 — 25.6% (first full quarter of iPhone on VZ)
    4Q11 — 43.2% (*the prior 2 year ago quarter was the first full quarter following launch for iPhone 3GS)

    1Q12 — 23.6% (iPhone 4S launched Oct ’11)
    2Q12 — 25.0% (first full quarter of iPhone 4S, rollout in China)
    3Q12 — 32.3%
    4Q12 — 52.4% (*the prior 2 year ago quarter was the first full quarter following launch for iPhone 4)

    1Q13 — 34.0% (iPhone 5 launched Sept ’11 with accelerated rollout)
    2Q13 — 49.8% (*the prior 2 year ago quarter was the launch quarter for iPhone 4 CDMA on VZ)
    3Q13 — 67.8% to 88.4% implied by Wall St estimates of 23 – 30 million units

    A few observations are fairly apparent from the above:

    First: There’s an observable pattern in the ratios, and deviations can be readily tied to known factors. For example, the 8.5% in 3Q10 reflects the slowdown in iPhone sales in 3Q08 (mere 717,000 units in advance of the launch of the iPhone 3G in July ’08) being compared to the launch quarter of the iPhone 4. As another example, the ratio is highest — ranging into the 40’s — when the 2 year ago comparison is to a launch quarter. All pretty understandable. The important conclusion I take from this is that there is a consistent (key is, consistent) underlying demand from iPhone replacement buyers.

    Second: The replacement demand ratio has been going up beginning roughly in the second half of 2012 — about 10 percentage points on YOY basis. That, of course, is what you would expect if, and this really nicely illustrates the impact of, declining demand from first time smartphone buyers.

    So, assuming the foregoing is correct and sound analysis, what does it tell us that is new?

    First, it offers an explanation for the QoQ decline in iPhone units last quarter, much more than 2012, that caused so much consternation not to mention downward pressure on AAPL. You would see that the 49.8% replacement ratio for the last quarter is in-line with prior quarters where the comparison 2 year ago quarter involved a launch (2Q11 was the launch quarter for iPhone 4 on VZ and came on the heels of the iPhone 4 launch right before 4Q10).

    Second, and perhaps more importantly, it tells us that the current Wall St estimates for this quarter of 23 – 30 million units would imply a replacement ratio of 68.7 – 88.4%! Wall St estimates imply little if any YoY unit growth, but potential replacement demand is 243% higher for this quarter vs the year ago quarter (20.3 mm vs 8.4 mm). Consider — a 50% replacement ratio (consistent with this being a quarter where the comparison is to a 2 year ago launch quarter) would imply 40 million units. A 60% replacement ratio (higher than it’s ever been for Apple and 8 percentage points higher than even the last quarter) would imply ~34 million units. In other words, this sort of replacement analysis would suggest that Wall St estimates for unit iPhone sales are likely low.

    • Chaka10

      Attachment

    • Walt French

      Bravo for teasing out the implied replacement rates (and thanks to PED for highlighting your work).

      My last replacement was driven by the inevitable swan song of a new gizmo for little more than the one I had (the subsidy effect), but many would be satisfied with what they had if it weren’t for the sharp improvement that the iPhone5 represented. (My experience is 3:1 overall speed increase vs the 4, meaning that I can chase down & scan articles that I might have let just go down the timeline without me, had my phone been slower.)

      I don’t sense that future upgrades within the iPhone line will be so significantly better than older machines, the same way that I’m quite happy with my 3-year-old laptop. Maybe others still have yet to experience LTE, and will be as enthused with it as I am.

      But while Horace does a fine job of documenting that the current smartphone market has NOT saturated, sooner or later, it WILL, by definition. Replacement cycles will stretch out and I hope your careful attention to the data will help us figure out when/how/how much.

  • mjw149

    The consumers who have not adopted are almost all low end or in the rural areas where smartphones make little sense. Yes, those areas exist and in the US there are lots of people in those areas that also are generally low income areas.

    Without real wireless policy in the US, mandating coverage the way we did with landline phones and the post office, we’ll never see that kind of adoption outside the urban and suburban areas.

    And of course there is a feedback loop here, as well. Our economic inequality makes those areas unlikely to get coverage or to vote for their own economic interests, while the lack of modern infrastructure (broadband and wireless) reinforces that inequality, since many opportunities and efficiencies are realized via new technology – particularly for the working class in the digital era.

    • mjw149

      Let me clarify, while thanks to Android eventually every phone will be a smartphone regardless of region, the utility of those phones and the ability to use the data will be greatly hindered in rural areas. Verizon infamously gave up on rolling out fiber to homes. LTE will likely fare no better. There wouldn’t have been highways in Alabama, after all, without federal taxes and investments.

      If Apple, Samsung, Google, MS want to expand their businesses in the US, they’ll either have to expand the middle class (as Henry Ford did, not likely) or lobby for federal oversight (hasn’t happened yet) or build it out (which Google has started doing).

      • Idon’t Know

        I have no such issues but I know plenty of people who cannot afford the phone or the service. $30 a month for data alone is a lot to them.

      • tjwolf

        mjw149′s comments are spot-on. You don’t even have to go to the backwaters of Alabama to see examples of this: I live in a fairly rural part of the most densely populated state in the nation, NJ, home of Verizon. For years now, I’ve been peppered with direct mailers from Verizon to enjoy FiOS – only problem is: FiOS isn’t (and probably never will be) available in my area (thankfully Cablevision gives me an awesome 15Mb speed). Similarly, my cell coverage at my house is atrocious.

        So, if the US carriers don’t even see enough economic benefit to build out their cell & fiber networks in the most populated state in the country – what is the likelihood of them doing it in states where they not only have less potential subscribers, but also lower income per subscriber!

    • source

      Seems like a mess of assertions. Any sourcing to add?

    • obarthelemy

      Actually, smartphones make the most sense in rural areas: no miles and miles of cable to lay to get to each and every home.

  • Brrriiiaaallliiiaaannnttt

    Smartphone saturation is a ridiculous meme perpetuated by the media…thank you for your data analysis, which confirms this

    Also, the other meme, that ‘high-end smartphone saturation’ has occurred is also a ridiculous meme, maybe you could do the same analysis by type of smartphone? (The reason I say this is based on simple micro-economic theory, basically how folks make individual buying decisions). Would be interesting to see the data, I would be shocked if there was a big delta between smartphone price categories

    Lastly, smartphones are have the quickest replacement cycle of any electronic device (1-3 years) in the States, especially given the subsidy model, why not?. The only realistic option is for folks to buy another smartphone, so…..

    Maybe I am missing something?

    • Chaka10

      @Brrriiillliiiaaannnttt

      I’m afraid perhaps there’s a mis-perception in the terminology, “high-end saturation”. I definitely do not mean it in the sense that no one wants to buy high-end smartphones any more. If you think of smartphone demand, as I do, in three buckets — (1) first time smartphone buyers, (2) replacement buyers from existing iPhone users and (3) net churn (positive or negative) from other platforms. Saturation in the way that I mean it just affects (1) above, and means that replacement demand and churn are becoming increasingly important — various surveys suggest that both of those are iPhone strengths. Moreover, I believe Apple base been dealing with this for a while already (I cite CIRP data for early 2012 that only 24% of iPhone sales were from first time smart phone adopters — only 24 percent!).

      Beyond that, I’m not sure I see why it’s controversial that there are fewer untapped first time smartphone buyers six years after the iPhones kicked it all off, especially at the high-end. Since iPhone owners are demonstrably the most active users of their smartphones, why is it surprising that members of that demographic are most likely at the early side of the adoption spectrum?

      • Brrriiiaaallliiiaaannnttt

        @Chaka I understand where you are coming from, and maybe I need to think it through more. (Would be awesome if we had the same graph above for different smartphone price categories – e.g. Sub $300, $300-500, $500+). Not sure if I believe that 1st time buyers have different buying behavior (I.e. prefer cheaper smartphones) than any other buyer…but maybe they do, would be interesting…Thank You Chaka…

      • Chaka10

        “Not sure if I believe that 1st time buyers have different buying behavior…” @Brrriiillliiiaaannnttt

        Perhaps it’s helpful to think of it the following way. Obviously from my prior posts, I do think adoption naturally evolves from high to mid to low, but, let’s assume for arguments sake that’s not the case. I.e., let’s assume that later adopters do NOT have different buying behavior and that the rate of first time adoption reflected in the comScore data goes equally into all segments of the smart phone market. I would point out that, at best, the comScore data shows that the rate of first time adoption has stayed steady (between 500 and 600 thousand per month) since 2010. But “steady” is NOT “growth”. So even assuming arguendo that the first time adopters are not disproportionately buying lower end, by definition a steady volume of adoption from first time smartphone buyers cannot be the source of “growth” for iPhone sales in the US (which we’ve certainly seen), and that growth must come from replacement demand and churn.

      • Walt French

        I was totally with you until you said that a steady 500K–600K new users per month is not “growth.” It’s not acceleration, or “second moment” for those who like to sound erudite, but I don’t know of any business that wouldn’t treat it as “growth.”

        Maybe I’m a bit tichy from recently seeing the claim that carriers “lose money” when they renew a customer and have to pay a subsidy. No, they are crying all the way to the bank by selling two years of a $80/month service plan (almost $2K) and sending maybe $400—20%—of that to Apple, a similar amount that they’d worked into their new customer profitability. That’s not growth, because they had the same run rate the year before, but it can’t be a loss to make that sort of money. If anything, they have lower sales/support costs for the renewing customer and they are MORE profitable. The recent upgrade plans appear to reflect the high profitability of upgrades, and the carriers’ ability to be nicely profitable on renewing customers.

        So there’s a bunch of confusion about profitability, growth and acceleration. Perhaps you can clarify how you’re not part of it.

      • Chaka10

        @Walt French. Thanks for pointing this out, and I share your reaction to the posts/analysis on carrier economics. I meant my post in the sense that, while a steady rate of new users per month certainly represents growth in the installed base, it wouldn’t be growth in the period to period unit sales. (To put it in your mathematical terms, f”(x) = f’(f’(x)).)

      • Mayson

        There wouldn’t be an increase from first time buyers, but there will definitely be increase from replacement and churn.

  • PS

    “What’s more, 2.5 million more people first started using smartphones in the three month period ending May vs. the three month period ending in April.”

    This comment implies that (sum(‘March-April-May’) – sum(February-March-April)) = 2.5M
    However, based on the chart it looks like the sum of March-April-May columns is lower than sum of February-March-April. I’m I reading the data incorrectly? Thanks.

    • Chaka10

      Reading the chart the way you do would compare net gains in the Mar-May period vs net gains in the Feb-April period. The quoted sentence compares average smart phone users in the Mar-May period vs average smart phone users in the Feb-April period, and says there were 2.5 mm more such users (who are new to the smartphone pool by definition) in the latter period (the math is AVG(March, April, May) – AVG(February, March, April) = 2.5). Looking just at the chart, you would be looking for just the last bar (for May), which is slightly higher than 2.5 (but doesn’t reflect the effects of averaging).

      • PS

        Got it. I was reading the chart as each bar representing average weekly new to smartphone user gains in that particular month vs. 3 months. Now it makes sense, thanks.

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  • Chaka10

    Early indication from VZ numbers today seems to provide prelim support for my analysis. VZ iPhone activations were roughly 3.825mm for the quarter (vs. 4mm in the previous quarter and 2.7mm in a year ago quarter). That’s a 4% decline on a sequential basis, and applying that same rate to total iPhone unit sales would imply 35.8mm for the June quarter. One a QoQ basis, it represents 41.7% growth, applying that same rate to total iPhone unit sales would imply 36.9mm for the June quarter. 35.8mm – 36.9mm would represent a range of 55.1 to 56.8 % “replacement demand ratio”, which would still be higher than it’s ever been for Apple, but much more in-line with historical rates (and compares with the extraordinary 68.7 – 88.4% implied by the Wall St estimates of 23 – 30 mm units).

    • phakim

      One thing to keep in mind is that the iPhone 4 launched on Verizon in February of 2011 so they may have higher sales in Q1 and Q2 of 2013 compared to other carriers as people coming off their first iPhone upgrade to the 5. Will be instructive to compare AT&T’s sequential drop to that of Verizon once AT&T earnings are announced.

      • Chaka10

        Yes, very good point. That would suggest a direct extrapolation from VZ to total iPhone unit sales would overstate the matter.

  • Andy Orr

    I apologize, but I fail to see how the data presented (maybe there is data that is unseen) shows that churn between platforms is negligible.

    As the chart only shows net losses or gains, it does not show what they are comprised of. A net gain of 5 for iPhone could be a loss of 4 to Android and 9 new…. or it could be a loss of 0.5 to Android and 5.5 new. Are there any good sources of information to help determine this?

    [Sorry -- just saw Chaka10's comment from yesterday wrt churn.]

    • Chaka10

      [removed]

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