Don’t Expect iPhone X And 8 To Drive An Upgrade Super Cycle

Earlier this week,  Apple (NASDAQ:AAPL) launched a trio of new iPhones called iPhone 8 and 8 Plus – which are essentially upgraded versions of last year’s iPhone 7 – as well as an all new smartphone called the iPhone X, which features Apple’s first new industrial design in three years.  While we expect both devices to sell very well (we project 6% iPhone shipments growth over the next calendar year), we do not believe that it will stoke an upgrade cycle on the scale of the iPhone 6, which helped Apple grow shipments by 37% during FY’15. Below we discuss why.

Trefis has a $164 price estimate for Apple, which is slightly ahead of the current market price.

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Customers Could Find iPhone X Overpriced, Design On iPhone 8 Dated

The iPhone X starts at $1000, making it Apple’s most expensive smartphone to date. While the device does offer strong differentiation versus lower range iPhones – the most notable being the edge-to-edge display and the face-based unlock feature – the core functionality may not entirely justify the lofty price tag in customers’ eyes, or appear compelling enough to get the masses to upgrade the way they did when the large-screen form factor was launched three years ago. The iPhone 8, on the other hand, could be less appealing to customers as it sports an industrial design first seen in 2014, albeit with a glass-based back and significantly improved technology.

Supplies Of iPhone X Could Remain Tight

Apple is reportedly having trouble ramping up production of the all-new device, amid a shortage of OLED displays (for which Samsung is the sole supplier) and some manufacturing issues. The delayed launch date of November 3 (~6 weeks post the iPhone 8’s launch) also appears to confirm this. KGI Securities estimates that Apple’s suppliers are currently only able to build about 10k units of the iPhone X per day. This could indicate that the model will remain in relatively short supply for a while, potentially limiting sales over the holiday season.

Apple’s Recent Track Record In Greater China

The Chinese market – which contributed to the big surge in demand for the iPhone 6 – could also be cooling off, driven partly by currency headwinds (which make Apple’s devices more expensive) and also due to the increasing availability of high-quality smartphones at lower price points. Separately, Chinese customers spend over 60% of their smartphone time on apps such as WeChat and Baidu which are platform agnostic, undermining Apple’s ecosystem effect. Many customers may be unwilling to pay a hefty premium for an iPhone when they can get a largely similar app experience on a cheaper device.

U.S. Carrier Promotions Could Be Less Attractive

While every iPhone launch typically sees a flurry of promotional activity in the U.S. wireless market, there is a possibility that carriers will be more cautious about deals on the iPhone X and 8. Postpaid wireless churn rates have declined across the industry, with customers generally becoming more reluctant to switch carriers. Moreover, the return on investment on these offers appears questionable, as deals are quickly copied across carriers, effectively meaning that the only real winners from hefty device subsidies are consumers and Apple, which benefits from having its phones discounted (related: Carriers Could Be More Cautious About Promos For iPhone 8).

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