IPhone 6 Set To Drive Apple Topline Growth

  • Apple announced iPhone 6 in two screen sizes, both larger than the previous iPhone models.
  • Apple’s launch of larger screen phones is in line with growing demand for bigger screen phones.
  • The demand for larger screen devices and refresh cycle of iPhone 5 users will drive iPhone 6 sales and Apple topline over FY 2015.
  • We re-iterate our positive long term outlook on Apple, as reflected in our Apple stock analysis.
iPhone 6 will drive Apple revenue growth and market share

The world was recently glued to what has become one of the biggest event in technology space. Apple’s product launch event held on Sep 9, 2014 was watched around the world and Cupertino did not disappoint. Apple announced the new models of the iPhone, iWatch and lastly iPay. Can Apple revolutionize the smartwatch industry and online payments industry just as it disrupted the computers market, audio devices market, phone market and the tablets market? Well these are questions to be answered, but for today we look into the potential of iPhone 6 and its implications to the Apple stock and its financials.

iPhone 6 Will Drive Apple Market Share Higher

Apple announced the iPhone 6 yesterday at Cupertino. The latest iPhone was launched in two screen sizes, which was widely expected. Moreover, both the models, at 4.7” and 5.5” screen size are larger than their predecessor’s; iPhone 5S and 5C, which came with 4” screens.

The iPhone 6 could propel iPhone shipments in 2015. In an earlier post on Amigobulls, we had highlighted that the 4.5” - 4.9” screen size and the 5”+ screen size markets are now growing faster. In line with that, Apple couldn't have timed the release of its larger iPhone at a more appropriate time, making the Apple stock a buy.

According to another post on cnet.com, iPhone 5 has the highest market share among iPhones devices with a 27% market share. Also as per numbers available on statista.com, iPhone 5 was the largest selling iPhone model selling over 91 million units by mid-July 2014.

iPhone 5 sales statistics
Source: statisticbrain.com

This coupled with the fact that most iPhones are typically released with a two year carrier contract hints at a huge demand for the iPhone 6, as many users could be looking for an upgrade.

More Buyers Upgrading To Newer iPhones.

Yet another positive development for Apple over the years has been an increasing number of iPhone users upgrading to a newer models.

Percent of buyers Who were upgrading Percent
Percent of iPhone 5S buyers who were upgrading from a previous iPhone 86%
Percent of iPhone 5C buyers who were upgrading from a previous iPhone 62%
Percent of iPhone 5 buyers who were upgrading from a previous iPhone 83%
Percent of iPhone 4S buyers who were upgrading from a previous iPhone 72%
Percent of iPhone 4 buyers who were upgrading from a previous iPhone 77%

Source: Statisticbrain.com

More number of iPhone users have upgraded with each successive model of iPhone, except 5C which was an attempt to create a new market. The iPhone6 could continue this trend, especially given the popularity of the iPhone 5 and the typical two year contract expiry and also the option to move to a larger screen device.

According to a post on macdailynews.com, majority of users have wanted an iPhone with a screen size of 4.5” or greater. The results of the macdailynews survey are shown below.

iPhone desired screen size survey results
Source: macdailynews.com

According to the above survey, over 65% of users have desired an iPhone with a screen size of 4.5” or greater and it is here the two new iPhone models will fit in well with user wants. It is clear Apple has finally given in to what consumers want.

Conclusion

The consumers demand coupled with iPhone 5 replacement cycle and greater demand for larger screen devices will drive iPhone 6 sales over the coming quarters, boosting the FY2015 iPhone sales significantly. iPhone is the largest revenue segment at Apple, contributing over 52% to Apple’s Q3 2014 revenue, and a significant growth in this segment will lead to huge impact on the overall topline growth of the company.

We have a positive long term outlook on Apple, which is reflected in our Apple stock analysis.

Update as of November 26, 2014

Apple had a great Q4 beating both on topline and bottomline estimates, and generated an earnings growth of 20% YoY. The Apple topline was driven by iPhone sales, and we feel that the iPhone 6 will add significantly to Apple stock gains in the coming year as well. Read how Apple stock will be impacted by iPhone 6 sales.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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