When Apple launches its annual line-up of new iPhones each Fall, it creates a surge in device adoption that spans the holiday season. Since the 2017 launch of the completely reimagined iPhone X, improvements to subsequent phones have been incremental, offering gains mainly related to the chipset, camera and screen. Since then Apple has released the iPhone XS and XR variants, the iPhone 11 line up and the 2nd Generation iPhone SE. The iPhone 12, coupled with 5G support, seems poised for stronger than usual uptake. For this analysis, we review the underlying drivers of iPhone device replacement including the relationship between consumer affluence and device age to understand how the upcoming iPhone 12 is positioned for this holiday season.
Device Obsolescence
A primary factor that drives new iPhone upgrades is device obsolescence. Apple doesn’t seem to explicitly plan this, but rapid innovation around both their hardware and operating systems results in reduced performance across older devices. Working against the growth of Apple’s annual iPhone unit sales is the fact that consumers are holding on to older devices longer. Today, consumers upgrade iPhones about every four years, compared to every three years back in 2018. For the iPhone 12 launch, those using the iPhone 7, launched in September 2016, or older models are candidates to upgrade their devices this cycle. We offer analysis on this below.
A Bigger Step
It’s speculated that Apple’s iPhone 12 will feature greater improvements than typical releases, which will likely increase device uptake. From a design standpoint, it likely re-introduces a smaller screen version as well as a metal, sharper-edged frame not seen since the iPhone 4. It will get a step up in speed while also better conserving battery life with the more energy-efficient A14 Bionic chip. There is a lot of buzz around the camera, with the largest phone versions rumored to feature a 64MP main camera, which will be a large improvement over the 12MP camera on the iPhone 11. Leaked rear glass pane images suggest that Apple will include a LiDAR scanner in the iPhone 12 Pro and Max that will help support augmented reality in some games and shopping apps, for example, by scanning local surroundings and superimposing various graphics into scenes.
A Shorter Window
Earlier this year, Apple CFO Luca Maestri announced that the iPhone 12 launch would be delayed, projecting that supply would be “available a few weeks later” than usual. That puts the launch most likely in the October timeframe, and the delay is likely due to Broadcom falling behind on producing the microprocessors for the iPhone 12. Apple has reportedly gone to great lengths to overcome production challenges related to COVID-19 and, unless delays are longer than expected, this should not be a major factor in its most important market, the United States, as new device uptake tends to ramp closer to Christmas.
The 5G Factor
Interest for the iPhone 12 appears greater due to the expectations that the device will be 5G-enabled, promising consumers access to seamless connectivity, faster speeds and next-generation user experiences. That said, tests have shown that 5G speeds are not pervasively available and sometimes actually slower than 4G speeds. The perception of a step-change in wireless technology could lead to a higher rate of iPhone upgrades this year, especially due to the pent-up demand created by Apple initially waiting to support 5G until this generation of iPhone. However, 5G may still be more of a future promise.
Affluence & Age of Device Base
Among the greatest factors in determining how well iPhone 12 may get adopted is simply whether consumers can afford them and what iPhone models they currently own. To better understand these factors, Flurry conducted some analysis, which we present below. Flurry Analytics, owned by Verizon Media, is used in over 1 million mobile applications worldwide, providing insights into more than 2 billion smartphones around the world. Take a look at the chart, and then we’ll go through it.
Fig. 1 Affluent Customers Upgrade iPhones More Frequently
In the chart above, we plotted countries by their consumer spending power and the age of their iPhone install base. On the x-axis we show how new the iPhone install base is. The farther to the right, the higher the percent of devices that are iPhone 8 or later models. On the y-axis we show the consumer spending power in a country, using household expenditure per capita. The higher up the chart, the more money is spent per household. The color of the dot relates to the size of a market, based on the monthly active iPhone devices Flurry detects in that market.
Let’s take a look at a couple of examples to get oriented. Represented by a dark green dot, the U.S. is among the largest markets with the highest consumer spending power and has a high proportion of newer iPhone models in use. This means that people in the U.S. can afford new devices and also upgrade much more frequently than in other markets. By contrast, Vietnam, in the lower left of the chart, has below average spending power and a larger proportion of older devices in its install base. Because the population cannot likely afford to upgrade devices more frequently, they hold on to iPhone 7 and older devices for much longer.
From our calculations, 63% of iPhones in use around the world are less than four years old (iPhone 8 or later models). For reference, we overlaid that average on the chart with a dashed gray vertical line. Countries to the right of the line replace their devices more frequently and overall have much newer phones. Those to the left of the line replace less frequently and have older devices, on average.
Statistically, we found a +0.8 correlation between spending power (household expenditure per capita) and the share of newer devices (a higher percent of iPhone 8 or later models). That is a very strong positive association, which means that the more spending power in a market, the newer the phones. This makes sense since a new iPhone requires a substantial investment and it explains why the United States and Hong Kong, both with a high household expenditure per capita, also have relatively low percentage of older iPhones in their respective markets.
Most of Apple’s smaller markets, represented by light red or gray dots, have low consumer spending power and a lower device replacement rate. This primarily includes most of Africa, as well as parts of Asia and Latin America. Consumers in these countries keep their iPhones for a longer period, likely due to having lower disposable income.
Some bigger iPhones markets such as Brazil, Russia, India and Indonesia have relatively low consumer spending power combined with a low device refresh rate. This means that a less expensive base version of the iPhone 12 can have a disproportionate impact on these key markets to get people to upgrade their iPhones sooner. This aligns with a previous report that Apple’s low-cost iPhones have helped Apple strengthen its footing in many international markets.
Using our calculation that 37% of global iPhones are four or more years old, and that there are an estimated 950 million active iPhones in the market, we estimate that 350 million iPhones are ripe for upgrade based on their age. This gives Apple a sizable addressable market with its iPhone 12 line. From various leaks, including from technology analyst Jon Prosser, Apple’s lowest priced model is speculated to start at $549 (with a rumored iPhone 12 4G). If this is the case, then Apple appears well positioned to drive upgrades from the older part of their install base. At the same time, with the highest end model speculated to retail for $1399 (iPhone 12 Pro Max), they would also cover off early adopters and loyalists in more affluent markets that want the latest and greatest Apple has to offer. By all accounts we predict a stronger than typical uptake of the iPhone 12 line compared to previous year’s launches. We’ll monitor early uptake of the iPhone 12 line when it becomes available and share those findings with you. Make sure you subscribe to the Flurry blog and follow us on Twitter and LinkedIn for the latest reports on smartphone, app behavior, mobile development and other trends.
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