iPhone 6S (Source)
When CEO Tim Cook revealed the new iPhones last week, the initial reaction was underwhelming. People said the new phones were boring. And the changes were at best incremental.
After all, the new iPhone 6s and iPhone 6s Plus aren’t revolutionary. These models are simply an upgrade from the iPhone 6.
Sure, Apple’s improvements include a faster processor and better camera. Plus, there’s a new touch screen that most people don’t understand.
It hardly seemed like a blockbuster release.
Yet the news from Cupertino, California, tells us otherwise. The new Apple iPhones are selling out at a rapid clip. Customers clearly like what they see with the iPhone, and they’re upgrading their phones.
Here is what Apple spokesperson Trudy Muller had to say about the launch:
“Customer response to iPhone 6s and iPhone 6s Plus has been extremely positive…Pre-orders this weekend were very strong around the world. We are on pace to beat last year’s 10 million unit first weekend.
Demand for the iPhone 6s Plus has been exceptionally strong and exceeded our own forecasts…We are working to catch up as quickly as we can…”
Last year, Apple sold 10 million iPhones during the release weekend. Those sales were a major factor in the company’s record-setting quarter, which generated $18 billion in profits.
On Sept. 25, the newest iPhones will launch in 12 countries. This year’s launch includes China as well. Last year, issues with Chinese regulators meant a delayed launch of the iPhone in China. Since China is a big market for the iPhone, it’s safe to assume this is helping contribute to a strong launch.
Don’t Miss the Crucial Number for Apple
Many investors are overlooking the most crucial number for Apple.
That metric is the frequency with which a customer upgrades their iPhone.
It’s currently estimated that Apple customers upgrade their iPhones every 26 months. Just two years ago, that upgrade frequency was 22 months.
According to a Gallup survey, Apple customers upgrade their phones for three key reasons. 2% upgrade every time Apple releases a new iPhone. 47% upgrade when their iPhone stops working. And 51% upgrade when their wireless carrier allows.
That last number is the most important. More than one-half of Apple customers would upgrade their phones when their wireless carrier offers a free upgrade.
Wireless carriers including AT&T, Sprint, T-Mobile and Verizon have typically operated with contracts. A customer signs a two-year cellular contract and gets a discounted phone. At the end of the contract, they can renew and get a new phone. It’s worked for years, and forces customers to stick with their carrier.
But it’s starting to change.
T-Mobile was the first of the wireless companies to ditch the cellular contract model. That put some initial pressure on the others to get away from the contract model.
The pressure increased last week when Apple announced the iPhone Upgrade Program. This allows customers to buy a new iPhone directly from Apple, with no upfront payment.
For as little as $32.41 per month, customers can purchase an iPhone 6s (the larger iPhone 6s Plus starts at $36.58 per month). Those who participate in the iPhone Upgrade Program can get a new phone every 12, 18 or 24 months, depending upon the plan they select.
Wireless carriers are in turn responding. They’re now also offering monthly leases on new iPhones, with upgrade cycles of 12, 18 or 24 months.
Apple Wins Big
These changes to the wireless business are big news for Apple. It means that a large portion of iPhone customers will be able to upgrade more frequently. Those upgrades will help boost iPhone sales.
Apple stock is clearly benefits the most from this change. Meanwhile, wireless carriers stand to lose. The reason is that Apple’s upgrade program allows customers to easily and frequently switch carriers.
Verizon’s CEO sees challenges on the horizon. Just this week, he said that the company’s earnings will “plateau” next year.
My advice is simple: buy Apple, and sell the wireless carriers.
This article is brought to you courtesy of Ian Wyatt from Wyatt Investment Research.