Stephen Silver
While services will continue to grow into a massive entity on its own, longtime analyst Gene Munster says that the iPhone will remain a "stable business for the next few years."
Apple's iPhone business will remain stable for years to come, which will in turn drive the company's service business — leading to further stock appreciation and more cash returning to investors.
That's according to Gene Munster, the longtime, much-watched Apple analyst who founded the venture capital firm Loup Ventures in 2016. Munster this week released the first note in what's scheduled to be a multi-part series on "Apple as a Service."
A new paradigm
Munster introduced the "Apple as a Service" story last week, comparing the "new paradigm that drives investor thinking on the Apple story" to such past Apple inflection points as the original period of Mac growth, the arrival of the iPod, and the iPhone.
He predicts that Apple's strength, in the future, will be less about product hype and unit sales figures, and more about ongoing services and sustained iPhone sales.
Room to grow
Munster's new research note, called Apple as a Service Part 1: Entering a Period of Greater iPhone Visiblity, looks at the changing iPhone business and what it means. In the note, Munster states that "the Apple story is well positioned for future appreciation based on a longer-term, more sustainable investing paradigm."
Loup Ventures sees the current iPhone base at about $800 million, and agrees with the Wall Street consensus that Apple will sell 220 million iPhones in both the 2018 and 2019 calendar years. Munster is skeptical, however, that Apple will make major inroads among those who currently own feature phones.
Munster also believes that the upgrade cycle has stabilized. While the cycle has lengthened in the past, he notes that Apple "has reported stable results for the first time in its history" in the last six quarters, with average unit growth over 2 percent in that period.
Apple has consistently posted a high retention rate for the iPhone, notes Munster, indicating that customers are happy with the product.
"For years there have been prediction that feature-rich competitors would decrease iPhone loyalty," Munster wrote. "And that simply has never played out."
Munster's note follows Apple announcing better-than-expected iPhone sales in the most recent quarter, following weeks of analyst predictions of soft iPhone demand.
More to come
According to Munster, future "Apple as a Service" discussions will cover such topics as the iPhone's importance to Apple's services business overall, capital returns, and new products in the pipeline.
Christine McKee
Charles Martin
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11 Comments
As negative as I usually am regarding the plateau/maturation of the iPhone market, I think there is a reasonable chance Apple may match the 235 million units they sold back in FY 2015 if the rumored LCD devices turn out to be quite decent.
Despite the outcry among the Apple faithful that the iPhone X is selling well, I don't think there is much argument it isn't selling as well as originally hoped. This was supposed to be a "supercycle" year driven by people who were putting off upgrading and waiting for the new AMOLED device that would challenge the design of the Galaxy S7/S8. Anticipations were high for 80 million units of the device to be sold and the drive to new record numbers of phones that would surpass the previous record set back with the introduction of the iPhone 6. Indications are that didn't happen and the X will wind up selling closer to 40 million units and overall unit sales will be stagnant yet again for FY 2018.
Now if Apple can put something out in the $700 range that replaces the four-generation old design of the iPhone 8 that will be competitive with the best of the Android devices then I think sales could spike next year. Strictly anecdotal but I'm holding on to my iPhone 6 and I know others in my social circle who purchased an iPhone 7 or one of the BOGO iPhone 8 this year simply because of the price. The $1K price of the X was quite simply a non-starter despite it being the top-line model.
Apple left behind its core users this past year with the exclusive push into the luxury goods market and the rehash of the iPhone 6 design for a fourth generation. The loyal customers who purchased $649 and $769 regular and plus devices in record numbers beginning in 2015 were left out in the cold, and were even kicked in the gonads with a $50 price increase for the same old design.
Hopefully this year Apple will strike the right balance and give the mainstream customers something worthy of desire. If they can do that then I think sales could increase above the 220 million plateau they have had for the past three years.
Go away Munster, nobody cares. I thought he was done with Apple. Typical analyst.
Munser is/was a nobody. Why AI continues to push this guy's "guesses" is beyond me. Sure he's an "analyst", but he's about as good as the penny fortune teller. Why not pick any schmuck of the street for their AAPL opinion instead of Munster's as they are both about as correct as can be?
Apple is basically treading water with iPhones and they don't mind coming in third or fourth place while most other companies are swimming at full pace to become the first across the line. That's the main reason why the big investors don't have much interest in Apple. Big investors seem to be mainly interested in backing those companies that are way ahead of the rest of the pack. Apple is doing OK selling iPhones and that's good. However, imagine if Apple updated their full line-up of computers, how much more revenue they'd make. It's as though Apple is only putting effort behind their iPhones and neglecting their other products. Does that even make any sense to most of you?
Anyway, as an Apple investor, I'm going to be satisfied if Apple can keep iPhone sales stable for years to come. Maybe the best long-term plan is Apple taking the cream and leaving low-fat milk for the rest of the manufacturers. In that time, Apple may actually come out with some new groundbreaking product or services that will add to that iPhone revenue. I trust Apple is playing a long game even if I can't see it. Wall Street seems to be so excited about cloud services and artificial intelligence and Apple doesn't really have anything in that space. Apple isn't interested in data-harvesting either. That's three things that get all of Wall Street's endless praise and Apple is excluded from all of them. Whatever happened to Apple's push in AR? I don't really see anything Apple is doing with it. I guess I expected all these amazing iPhone and iPad apps that took advantage of AR, but where are they.