Why Apple’s next-gen iPhone 6s/Plus will generate 20% growth

“The smartphone refresh cycle has maintained its course due to the rapid depreciation of mobile components and the ongoing commitment to two-year mobile contracts,” Alex Cho writes for Seeking Alpha. “Sure, some have opted out of two-year contracts, but the vast majority of smartphone plans are sold on a two-year contract.”

“Therefore, a refresh every two-years seems more or less intact,” Cho writes. “What gained Apple mobile subscribers was emerging market growth, and market share additions. The move to high-end devices has crippled demand for commodity phones, and as such, Apple is positioned for success despite the looming skepticism of the bears.”

“I anticipate growth in units at around 21% year over year due to continuous growth of the entire installed base inclusive of upgrades from iPhone 5 and 5s users,” Cho writes. “If the last cycle was all about the bigger screen real estate, the next cycle will be driven by performance and higher base storage. That’s not much to work with, but when you’re dealing with users who are transitioning away from low-end Android devices just about any high-end phone looks like a Maserati in comparison.”

Cho writes, “Assuming Apple is able to generate 20% revenue growth in the next fiscal year, the stock is a freaking bargain at these levels.”

Read more in the full article here.

MacDailyNews Take: Again, only some 27% of iPhone users have thus far upgraded to iPhone 6/Plus. Not counting Android to iPhone upgraders, an enlightened group of former sufferers that growing at a record rate.

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  1. Anecdotal evidence from friends and my own needs leads me to think 20% growth might be conservative.

    There are a lot of people I know who have Samsung, simply because they were essentially given the phone because it was the low or no cost option by their cell provider.

    Once these people get PO’d enough (all sorts of reasons), they are all going to be Apple customers.

    I’ll upgrade to the “7s” when it comes out, like a lot of other people who upgrade every 2 years.

  2. Analyst Amit Daryanani of RBC reiterated his “outperform” rating for shares of AAPL in a note to investors, a copy of which was provided to AppleInsider. In it, Daryanani noted that Apple’s manufacturing and component purchase commitments as of June 2015 stood at $21.7 billion, a massive 40.9 percent year over year increase.

    Noting that it’s the highest number he’s ever seen from Apple, the analyst said it suggests that the company is not only gearing up for the “iPhone 6s” launch, but could be planning other new products to debut in the coming months.

    To Daryanani, Apple’s spending signals that the iPhone maker is planning a “material ramp” for new products in the second half of 2015 and the first half of calendar 2016. In his view, the company’s current valuation is well below what it should be trading at.

    “We believe AAPL’s current stock price creates an attractive entry point for investors to benefit from AAPL’s ability to sustain revenue and (earnings per share) growth through (fiscal year 2015),” he wrote.

    RBC was joined by a number of other investment firms in standing by Apple after last month’s record earnings report. Although Apple sold more iPhones than it had ever before in the June quarter, the company still fell short of bullish expectations on Wall Street, contributing to a recent tumble in share prices.

    Like Daryanani, most prominent analysts have said they see the current slide as an opportunity for investors to buy into Apple. In particular, the company is expected to debut its next-generation “iPhone 6s” in September, along with a new Apple TV featuring a touchpad remote, dedicated App Store, and Siri support.

  3. I said it yesterday, I’ll say it again today, there are 3 main reasons to upgrade every 2 years (regardless how it was purchased).

    The first is battery life. Mobile devices have replaced computers (including laptops) as the primary content consumption devices. ALL mobile devices run on batteries, and with an ever increasing amount of content consumption those batteries effective lives are being used up at a faster rate. After two years of use the average battery has lost about a third of its designed capacity. That means an original 6 hour charge capacity has been reduced to four (or lower depending on degree of use).
    Moore’s Law applies to more than just processor advances. It also applies to feature/functionality improvements. An iPhone 5 does not have Touch ID. The iPhone 5S does have Apple Pay. Neither has Apple Watch integration or today’s 4G/LTE chips (faster/lower power consumption) among many other less significant enhancements.
    Then there are the unfortunates limping along with broken/damaged handsets (especially plastic bodied models).

    Analysts and investors should not be thinking Year over Year performance simply because last year’s buyer is not a buyer this year. Instead investors should be thinking two year performance comparisons. Looking at future iPhone sales potential we see that iPhone unit growth has averaged >51% over the last 8 quarters. Add to that the trend for an ever increasing “switcher” rate and 20% YoY unit growth is very realistic.

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