Half of U.S. iPhone Users Could Start Upgrading Annually

By Evan Niu, CFAFool.com

Image source: Apple.

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Call me Captain Obvious, but we all know how important the iPhone business is to Apple . I'll spare you the figures that you've already heard by now about how much of Apple's revenue is attributable to its popular smartphone, but needless to say, it's a lot. Accordingly, the frequency of iPhone upgrades has always been a contentious issue among investors. Elongating upgrade cycles could be very harmful to Apple's results, while accelerating upgrade cycles are (Apple) music to Tim Cook's ears.

This used to be a conversation about subsidies since they used to be the single most important factor determining whether or not consumers decided to upgrade their iPhones this year or not. But with the subsidy model on the way out, the conversation is now all about installment plans, leasing plans, and early upgrade programs.

Accelerating iPhone upgradesPiper Jaffray analyst Gene Munster is out with a new research note, and he's naturally bullish as always. Munster surveyed 236 U.S. consumers and asked what their intentions were about upgrading their iPhone. Currently, the data suggests that the average upgrade cycle is 22 months, but Munster believes that Apple could get this down to 15 months.

In order to accomplish his, Munster thinks that 55% of users will begin upgrading on an annual basis or sooner, with 25% of users upgrading every 13 to 18 months, 10% upgrading every 19 to 24 months, and another 10% upgrading over two years.

Munster has an "overweight" rating on Apple alongside a $179 price target.

Tim Cook agreesApple has never provided first-party data on how often iPhone users upgrade, but it's fair to say that it used to be right around two years due to service contracts. What Tim Cook has expressed is a belief that all of the new plans that domestic carriers have launched will be good for Apple. Here's Cook on the July conference call:

And again just last month:

Cook also brings up another good point here. Since all of those used iPhones that are traded in are subsequently resold, this creates another secondary market that allows the iPhone to unofficially address lower price points. Sure, there's always been a secondary market for used iPhones, but now it will be more robust and more structured, which will inevitably benefit consumers within that market segment.

Eventually, those consumers will probably upgrade, too.

The article Half of U.S. iPhone Users Could Start Upgrading Annually originally appeared on Fool.com.

Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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