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Analyst Katy Huberty with Morgan Stanley issued a note to investors this week citing an AlphaWise survey that suggests more than half of all iPhone users plan to upgrade to Apple's latest handset. Factoring in new purchases as well, she expects Apple to sell at least 42 million iPhones in calendar year 2010, significantly growing the active iPhone subscriber base. Her "bull case" scenario goes even farther, with 48 million sales this year.
"We see the iPhone installed base rising from approximately 30M subscribers at the end of 2009 to over 100M by the end of 2011," she wrote.
Earlier this year, Apple reported having sold more than 85 million total iOS-based devices. However, that total includes the iPod touch, which does not include a subscription, as well as users who upgraded their iPhone to a newer model while deactivating their previous handset. In April, it was suggested that about 30 percent of Apple's first-generation iPhones, released in 2007, remain in use today.
The upgrade rate for iPhone 4 is expected to be significantly higher than previous generations. While the AlphaWise survey found that 58 percent of current iPhone users intend to upgrade this year, that's well above the 18 percent who said they would upgrade in November 2008, and the average 25 percent since the 2007 launch.
Huberty's base case sales of 42 million iPhones in 2010 assumes a 30 percent upgrade rate for existing customers. But that number goes up to 48 million if 50 percent of customers upgrade in 2010.
The analyst said she sees at least 9 million total iPhone upgrades in 2010, increasing to 19 million renewals in 2011. Customers will stick with the iPhone, she said, because redesigned hardware brings new features, software on the App Store creates "stickiness" with consumers, and 57 percent of the U.S. installed base is not fully upgradeable to iOS 4 with multitasking.
Many iPhone 3G customers who signed a contract in 2008 will see their two-year agreements end soon, and those two-year-old handsets are not capable of multitasking with the iOS 4 upgrade. First-generation iPhone owners will not be able to run iOS 4.
Another factor driving upgrades is AT&T's decision to push forward upgrade eligibility by 6 months. Customers who are upgrade eligible for a new iPhone at any point in 2010 may take advantage of the fully subsidized price of iPhone 4 on its June 24 launch. AT&T customers can verify their upgrade eligibility by going to att.com/iphone or dialing *639#.
Huberty has also been a proponent of Apple and carriers offering a lower cost of ownership for the iPhone. AT&T recently instituted tiered data plans, with the high-end offering costing $25 per month — $5 less than before — but with a new 2GB monthly data cap. Users can also obtain an entry level 200MB-per-month plan for $15. The analyst noted that AT&T's changes reduce total cost of ownership of the iPhone by about 20 percent.