Apple and new iPhones?

Every year Apple launches new iPhones, and then the trolling begin.

That's true :)

If you compare iPhone 12 with the newly launched iPhone 13 - an average phone user will not find much difference.

So then two critical questions -

1. Why a company like Apple launches a new line of phones every year?
2. If people are trolling the newly launched iPhone, who is buying the not so enhanced phone each year?

Okay, to answer the above two questions - we need to dissect some numbers.

First, let's check the revenue generated by Apple through the iPhones since its launch and few other metrics too.

(Apple stopped providing data of total units sold from 2017 onwards. So have assumed ASP of $650 to derive the units sold from 2017 onwards)

So it is clear from the above image that the iPhone revenue as a % of total income has plateaued - around 50%

Why has the revenue from iPhone plateaued?

The smartphone market is matured. So, those who wanted smartphones already have them.

The image below shows the global smartphone units sold is hovering around 1.5 Billion units a year.

But the market share of Apple is increasing :)

Check QoQ figures - like Q4 2018 vs Q4 2019 vs Q4 2020, and you will see the trend.

So how is that Apple can increase its market share?

Apple is taking market from other players by launching new phones every year. So definitely, there is a demand for Apple phones.

Apple sells iPhone to two sets broadly -

• iPhone to iPhone upgrade - This set is the one that already has an iPhone but wants to move to buy a new phone as a part of the phone upgrade process. Usually, the iPhone to iPhone upgrade cycle is 2.5 to 3.5 years. So just to put a perspective - iPhone 13 may not be too appealing for iPhone 12 users (as they must have purchased a phone last year), but it will surely appeal to iPhone 11 or older iPhone users - for them, the features are pretty enhanced + they have experienced the entire Apple ecosystem so yes they will upgrade

Out of 200 Mn+ units sold by Apple each year - this segment contributes to 70-80% of the purchase. That means close to 140 Mn+ units are bought by someone who already has an iPhone.

• First-time buyers - This set is the one who wishes to experience iPhone, and for them, Apple launches Mini-Series or SE Series.

Out of 200 Mn+ units sold by Apple each year - this segment contributes to 20-25% of the purchase. That means close to 40 Mn+ units are bought by someone new to an iPhone world.

The logic of new launches every year?

1. Capture the market - Apple wants to capture the market share so that cross-selling can happen. iPhone is the most appreciated and readily saleable product (compared to other products). Think of this - as a first-time buyer, would someone buy MacBook first or an iPhone first? (most will go for later)
2. Create a buzz around the festive season - It is challenging for a company to keep growing YoY when your sales are already $200 Bn+ and your ~40% of the revenue is generated from the USA. Make use of the festive season (Thanksgiving and Christmas). Between Oct and Dec each year - Apple generates 35%+ of the total yearly revenue.
3. Maintain ecosystem-level leadership - To grow, Apple can't rely on iPhones as the other companies are also coming out with an equally good phone. What others do not have is the ecosystem. An ecosystem where devices talk to each other seamlessly - and that's the moat for Apple.

The installed base for Apple (cumulative)

So, to put it into perspective, Apple uses iPhone as an entry point product to allow users to experience the ecosystem to use other products and generate revenue for Apple.

Brilliant, isn't it?