Amount of first-time iPhone buyers dropping; upgrades increasing

Amount of first-time iPhone buyers dropping; upgrades increasing

Summary: Sanford Bernstein analyst Toni Sacconaghi wonders if there are enough wealthy people in to sustain iPhone unit growth.

TOPICS: Apple, iPhone
Fortune's Chart of the day: Has Apple run out of wealthy iPhone customers? Jason O'Grady

Sanford Bernstein analyst Toni Sacconaghi produced the chart above for a report that tells an interesting, and potentially troubling, story for Apple.

According to his research the amount of net new iPhone customers (those coming from another platform or no previous smartphone) – the black bars in the chart above – will shrink from 62 percent in 2012 to an estimated 54 percent in 2013, a 13 percent decline. 

Sacconaghi's concludes "barring a signed contract with China Mobile (CHL) or an iPhone priced to sell to the developing world, there is a slim margin of error that Apple will attract sufficient first-time iPhone buyers going forward to meet consensus forecasts for [fiscal year 2014 and 2015]."

He estimates that 2014 and 2015 will see further declines in new iPhone customers (37 and 28 percent, respectively) and that the percentage of people buying iPhones as "replacements" (the blue chunk of the bars above) will increase to almost 70 percent in 2015.

While not exactly the death knell for Apple, the company sold nine million iPhones in their first weekend after all, the trend would be troubling for Cupertino and mean that the company is selling more iPhones to upgraders. This would mean that less new customers are coming into the Apple ecosystem, which could slow the growth of content sales (including apps, music and movies).

Sacconaghi's data assumes that Apple won't sign an agreement with China Mobile, which already has 42 million iPhone users according to some estimates. If such a deal is announced (presumably after China Mobile's LTE deployment) Apple could easily add a large number of China Mobile's 700 million subscribers to its new customer numbers.

Tip: Fortune/Philip Elmer-DeWitt (@philiped)

Topics: Apple, iPhone

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  • The end of the world as we know it!

    Not. I don't have an iPhone, and I'm not planning to get one. Having said that, I don't think these figures represent a death knell for Apple. There are still plenty of iPhone out there. It's just the case that most people that want an iPhone already have one, so most sales are for replacements. I think Apple will get along fine without growing markets. If sales drop, that may be a problem, but I don't thinks there's any sign of that. Their fraction of the smartphone market has fallen, but they've still increased sales year on year. I'll be happy if they keep on making good phones. That way we all get choice, and it's incentive for the Android (and other phone) manufacturers to keep making improvements.
    • It's worse than that

      This article isn't just unhelpful to the reader. It also indicates a total failure by O'Grady / ZDNET editor, to understand the numbers.

      Of course as the installed base of a product increases, the percentage of new users drops on each round. It is pretty much inevitable. For it not to be the case would pretty much require a failed product round.

      What would be of significance would be to look at the absolute numbers of new users each year.

      If that is dropping, or predicted to drop, then that would represent a slowing of growth caused by the limitations of the potential market and would be worthy of note. But figures for that aren't provided.

      Sorry but this article, whether deliberately or not, is no more than FUDS.

      It gives the appearance of a problem, without any evidence of a problem.
      Henry 3 Dogg
    • People with out iPhones

      Normally I never under stood why people that don't have Apple products and would never own Apple products, feel the need to stick there usually uninformed opinion into the conversation. However "Henry3Dogg" does bring an insightful and knowledgeable response to this article even though he does not own Apple products.
  • End

    For one thing, the 3GS and 4 have reached end of life, as the 3GS won't run iOS 7, and the 4 seems to have problems with it. iOS 7 was designed for the 5S, which is 8 times as fast as the 4, so it is likely that users of iOS 7 on the 4 will be wanting to upgrade. As far as Apple is concerned, this is a sale. True, it doesn't bring in new blood for the 'ecosystem', but it does offer the same profit margin as it would were the sale to a new smartphone user, or a former Android, Blackberry, of Windows Phone user. And from what I have seen on the net, Apple is actually gaining market share on Android at this point.
    It has been said that Apple isn't 'innovating', but it seems to me that the current crop of Android phones really isn't either. True they have some 'gee whiz' features, which are primarily software, but none of them are something I would buy their phone just to get. I don't think this is a longterm trend, just a short term fluctuation.
  • Big what if chart

    The last thing anyone should trust is an analyst and their public announcements. Behind closed doors he's telling another story. They're trying to drive down apple stock prices in hopes apple actually does sign with a contract with China Mobile then the stock will shoot up and they rake in the profits.
    new gawker
  • obviously

    Of course. Once everyone on Earth ones one, the number of new buyers will go down. I mean... who else out there hasn't bought one yet? I guess maybe people's pets or kids too young to operate a phone? People living in caves?
  • Their fate was sealed from the beginning

    7 billion people in the world and Apple has priced itself well out of the reach of more than 6 billion of them. What else did you expect was going to be the longterm trend?
  • Android!

    I think people is realizing that Android has a lot more potential than apple ever has:)
    • You mean *less* potential? Android is alread on all $70 "smartphones", so

      ... there is no way to gain much marketshare for the platform.

      On other side, market for pricey smartphones gets saturated, so Apple eventually will have to make iPhone 5c an affordable option. $399 next year, maybe even $299 in year after that (2015).
      • How about $49 for a brand new 5c from WalMart?

        I'm not sure i get why everyone thinks people have to be rich to get an iPhone. WalMart will sell a brand new 5c to anyone who's got $49. And I think others are offering the $99 5c with a $50 rebate ... making it $49. Sure, it's just a colorful, plastic-case 5, but it works fine.

        And as someone else pointed out ... "growth" isn't always necessary. At some point -- once everyone has one -- there wouldn't be any more growth ... unless Apple figures out how to sell people two ... maybe one per ear?

        It's only natural for markets to eventually get "saturated" ... that's when Apple (and others) have to convince current customers to buy peripheral products ... like watches that communicate with their phones, or ocular devices, or who knows what else.

        Fortunately for Apple, they're selling 10s of millions of iDevices a year. Even without China Mobile they probably won't be fading into the history books any time soon, at that rate.
        • walmart

          First you need good credit to get it at $ 49
          second you have to pay 1 first month around $ 90 + 49 + 139
          Third is under contract
          Fourth is a close system
          Selena Texana
          • And...

            5th, because it's under contract you're paying, month to month, about twice as much for your phone bill than if you had bought outright and got a no contract plan.

            How much do you save or lose?

            Well I paid $200 from sprint for my 4s a few years back, then a $97 (including taxes) bill per month. 3g service. 450 minutes. Comes to $2528 over the course of 2 years.

            I bought an s3 from MetroPCS this past year for $299. $50 month including taxes. Unlimited talk, but 2.5 data (I use on average 1.5 gigs). Far better service down here in South Florida than Sprint.

            Over 2 years that comes in around $1499.

            That's a difference of $1029. So basically if you buy ANY contract phone in the $200ish range and your bill is in the $80-$100 range, it may SEEM cheap to get it, but at the end of the day, you're paying abut $1000 more to get that contract phone "cheap".

            Even taking the low end, say an $80 a month bill (including taxes), and $50 upfront for the phone..., that's still about $1969 over 2 years, or $470 MORE to ge that "cheaper" phone.
  • Doomed

    Mister Arithmetic Person stopped by to point out that if Apple sells about 100 million iPhones per year, and 54% of them are to new buyers, then there are 54 million new buyers, and not much angst among app developers.
    Robert Hahn
  • Self-evident

    Isn't this extreemely self-evident, as the numbers of people without Smartphones dries up, and people become locked into the ecosystems and their investment in IOS, Android, and to a lesser extent Blackberry and Windows Phone, and the subsequent upgrade cycle now usually settled on 2 (contracted) years of a cell contract.

    Absorbing the people jumping from the sinking Blackberry ship is the current ray of sunshine in 'new to platform' customers, for all manufacturers whether Apple, Nokia, Samsung etc...
  • Curious

    Now, I actively use an iPhone, but brought last year an Windows Phone as experiment too. That experiment didn't go well, but that is not the point.

    So by this measure, if I go and buy another Windows Phone, say an Lumia 1020 that is not a new sale, but an "upgrade"? It could be, if I trade in my old WP, but I cant...

    What I really see in these charts is that the percentage of carrier-supplied iPhones decreases dramatically. This means that people go and buy their iPhones directly. Would be interesting to see the same charts for other platforms.
    • opposite here

      We do some phone development. We have bought 4 Win Phones outright, all unlocked. Only one even has a SIM. We don't figure in carrier stats
  • Misleading graphics: another case of Lies, Damned Lies, and Statistics

    The graphics you show would be concerning if the overall numbers of iPhones sold each year were similar, but Apple's year-over-year numbers in iPhone sales are still growing by leaps and bounds. Let's try a thought experiment (since I don't have access to actual figures right now):

    If Microsoft sold 30 million xPhones in Year X and 75% of them were to new customers, that would mean that 22.5 million new iPhone users were added to the ecosystem.
    If Microsoft sold 50 million xPhones in Year X+1 and 50% of them were to new customers, that would represent a 25% percentage drop to new customers.

    Worrying, right? But it also means that 25 million new xPhone users were added to the ecosystem. Now that's not something I would worry too much about, because that's still a fairly big increase in the number of new customers (2.5 million, or 11% growth).

    Now of course this is a thought experiment, because the idea that Microsoft would sell 50 million phones on its OS is laughable.
    • @ ssaha

      Your post deserves a kicking reply.

      What is clearly misleading is your grossly disgusting interpretation of what the data did not show.

      "Apple's year-over-year numbers in iPhone sales are still growing by leaps and bounds."

      Says who? If there is a first-order increase in the total # of iPhone users by larger growth rates, then Wallstreet analysts would have noted that and the stock would have been pushed to a higher level with same PE multiple to indicate the increase in revenue and profit from these users. But profit numbers have actually stagnated or slightly declined, haven't they? For Q-o-Q and recently.

      Obviously, the valuation actually declined as you can see from yahoo finance or ycharts. Which shows that the total number of users do not grow at the rate that they used to. Which is the real reason *every* tom, dick and harry Apple analyst is fretting about, isn't it!

      Lastly, Microsoft's OS does not have momentum. But Lumia phones do have momentum. So for sure that number will be beyond 50 million at whatever ASP that they can afford to be at. And it will surely occur in another 2 to 3 quarters. Isn't this the reason that Microsoft acquired Nokia (to garner all gross margins on phones at various levels and to continue momentum) to boot with?

      Keep your thought experiments simple. Unless you want to get into Quantum Mechanics and Quantum Field Theory. When my thought experiments will saturate you and drain you into getting to a mental asylum.
  • Dropping new users

    What it really means is that until Apple has a larger screen size model, it's not going to be attracting huge numbers of Android/Windows Phone users.
  • guessing at how many upgrades is one way to do it I guess...

    however the fact remains, that 2 years ago, Apple only sold 17 million iPhones during the quarter...

    this year they sold 9 million iPhones in a single weekend...

    how exactly are there going to be more "upgrades" than first time buyers when they sell 4 times as many iPhones this quarter? which makes his figures just a little bit suspect... (and 4 times as many for the year by the way) did they all 'update' with "ADDED COST" to their plan? they apparently are part of the people that this author thinks can not afford to do it again?

    also, apparently he has never heard of China before?
    Honk Jhonk