Apple's iPhone install base features growing 'powder keg' ripe for upgrades, Cowen says

As Apple's iPhone install base continues to grow, so too do the number of customers who are likely to upgrade to a new handset, representing what one investment firm has dubbed a "powder keg" that could propel shares of AAPL higher.

Analyst Timothy Arcuri of Cowen and Company issued a note to investors this week, saying that continued focus on the "iPhone 7" and its expected lack of a major redesign is missing the real story. To him, Apple's installed base has a growing number of iPhone users who are due to buy a new handset in the coming years.

Cowen's analysis suggests that about a third of the iPhone installed base is currently running iPhone models that are greater than two years old. That's expected to grow to about 43 percent in the next four or five quarters, or growth of between 60 million and 70 million.

Cowen estimates that the current installed base is growing by about 70 million units per year, but less than 30 million of those are devices more than two years old. By the end of next year, Arcuri estimates that installed base growth will slow to 45 million units year over year, but the number of devices more than 2 years old will be growing by between 60 million and 70 million.

"In other words, the entire growth of the base — and then some — Â will be from older units that are ripe for upgrades, especially to a new OLED-enabled form factor," Arcuri wrote.

Edge-to-edge iPhone display concept by Martin Hajek.

To Arcuri, the growing number of users due for upgrades signals one of two things. Either the "iPhone 7" cycle will prove better than investors fear, or Apple is setting up for a "super cycle" with a major redesign of the iPhone in 2017.

Arcuri noted that while the PC installed base has been aging for years, PCs are largely being replaced by other devices, including smartphones and tablets. He doesn't see the smartphone installed base remaining quite so stagnant, however, as there has yet to emerge a replacement form factor for the smartphone.

Seeing the potential for the "iPhone 7" to outperform expectations, or for a 2017 model to result in a "super cycle," Arcuri believes investors should buy in now.

"At this price, we think it very much pays to maybe still be a little early," he said.

Cowen and Company has maintained its "outperform" rating for shares of AAPL with a price target of $125.

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41 Comments

6Sgoldfish 9 Years · 108 comments

About 8 years ago

The growing number of users due for upgrades signals a couple more things. A certain number them may be satisfied enough as to not care about upgrading to the latest and greatest. There are those who cannot afford to. And then there are those, myself included, who find themselves unimpressed by Apple's recent offerings and prefer to wait it out. And it's a long wait until 2017..

mj web 16 Years · 914 comments

If "Apple is setting up for a "super cycle" with a major redesign of the iPhone in 2017", as the article suggests, that's just an apologetic excuse for Apple blowing critical deadlines for its iPhone 7 ramp in 2016. Contrary to the analyst's conclusion, I won't upgrade my iPhone 6, as always, unless the iPhone 7 strikes me as a must have investment.

foggyhill 10 Years · 4767 comments

6Sgoldfish said:

The growing number of users due for upgrades signals a couple more things. A certain number them may be satisfied enough as to not care about upgrading to the latest and greatest. There are those who cannot afford to. And then there are those, myself included, who find themselves unimpressed by Apple's recent offerings and prefer to wait it out. And it's a long wait until 2017..

Unimpressed in what way? This is basically a standard issue response.

foggyhill said:
Unimpressed in what way? This is basically a standard issue response.

In the industrial/product design way.

It's a matter of expectations at the end. If the rumors about iPhone 7 are accurate (considering how the ones about the 6 indeed proved to be), it would seem Apple follows a 4-year radical redesign cycle next to its tick-tock "S" cycle. The original iPhone, then the 4 and the 6. The 3G(S) were incremental refinements of the original, and the 5 was little more than a stretched 4(S). I would have expected a radical redesign in 2016, at least for the sake of addressing the competition. But if the pattern holds, it looks like they'd pull a similar stunt with the 7 as they did with the 5, and perhaps sacrificing the S cycle in 2017 --unless they release a 7S next to the purported legendary 8. Although then it would become a bit too convoluted.

Anyway. At the end of the day it's usually just us tech forum geeks who really care, and the 7 will set sale records regardless whatever lack of "wow" factor.

1983 12 Years · 1225 comments

6Sgoldfish said:

The growing number of users due for upgrades signals a couple more things. A certain number them may be satisfied enough as to not care about upgrading to the latest and greatest. There are those who cannot afford to. And then there are those, myself included, who find themselves unimpressed by Apple's recent offerings and prefer to wait it out. And it's a long wait until 2017..

Yes, I'm in the same camp as you. What might be worrying though is that a number of those older users also unimpressed by Apple's offerings, instead of waiting it out will jump ship and go to Android instead.