Key to GuoLian: Market share misleads, user upgrade rate is the key, so Apple will be strong in this cycle

Is Apple a bit "cold" this summer?

Since the release of the iPhone 15 series, Apple's sales have been consistently weak. From the beginning of the year to the second quarter financial report, Apple's performance on the US stock market lagged behind the S&P 500 index by 1630 basis points. Particularly in China, where sales have cooled down, the decline in market share has raised concerns in the market.

Investors usually believe that the changes in iPhone sales are due to the market share competition with Android manufacturers, meaning that the growth/decline of Apple's sales is due to the decrease/increase in Android sales.

However, a research report released by Bernstein on the 12th stated that such views are incorrect. In fact, iPhone sales are mainly determined by Apple's upgrade rate, not the change in market share.

The competition for Android market share is overestimated, the upgrade rate is the key

Bernstein pointed out that most iPhone buyers are actually existing Apple users upgrading, rather than new users switching from the Android system. CIRP data shows that 91% of Android users plan to buy another Android phone as their next new phone (while 94% of iPhone users also share the same view).

Therefore, iPhone sales rely mainly on the upgrading behavior of existing users. A strong product cycle will lead to a higher upgrade rate.

We estimate that for every 1% change in the upgrade rate, iPhone sales will change by 3.3%, and the company's total revenue will change by nearly 2%.

The report highlights that this is particularly evident in the Chinese market, where "the update cycle's impact in the Chinese market is more significant than in other global markets." Chinese consumers are very sensitive to new features, and whenever Apple launches a new product, the Chinese market usually experiences a significant increase in sales, followed by several quarters of sales decline.

Bernstein further proved this through data analysis:

During a strong iPhone cycle, with the acceptance of new phones by Chinese consumers, Apple's revenue growth in China has always been much higher than Apple's global revenue. After the strong acceptance of new phones, there are usually several quarters of weaker (and often negative) year-on-year growth.

For example, in 2019, global revenue declined by 5% in the first and second quarters, but revenue in China declined by 27% in the first quarter and 22% in the second quarter. Similarly, in the second quarter of 2017, global revenue grew by 5%, but revenue in China declined by 14%.

The analysis further points out that Apple's revenue in the Greater China region dropped by 8% in the recent second quarter, likely due to weak upgrade cycles rather than competition from local brands or user conversions.

In 2025, Apple will usher in a strong cycle

Bernstein pointed out that Apple's potential user base has been growing steadily at a rate of 3-4% over the past five years, reaching nearly 1 billion now. This growth seems more stable than the fluctuations in sales Therefore, the sales growth of the iPhone in the 2025 fiscal year is expected, because Apple's existing user base is aging, and users are more likely to upgrade to the latest iPhone model, which will drive up the upgrade rate and thus increase sales.

Another driving factor is the upcoming AI features. Analysis suggests that these new features will be highly attractive, further promoting user upgrades.

Since the 5G cycle, Apple's user base has grown by 15-20%. Bernstein believes that this growth, coupled with potential Average Selling Price (ASP) increases, will benefit Apple with healthy iPhone revenue growth in the next 1-2 years. The application of generative AI is expected to help Apple achieve more sustainable growth.

The strong performance of the iPhone 16 may be delayed until the 2026 fiscal year, but long-term growth remains optimistic, benefiting from user base growth and ASP increases