Can The iPhone Performance Throttling Controversy Impact Apple?

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Over the last two weeks, Apple admitted that it was throttling of performance of iPhones as their batteries age while also issuing an apology to customers. The move comes after the company faced criticism from both customers and analysts who said they had noticed a slowdown in the performance of older iPhones with recent software updates. To address the issue, Apple has promised to temporarily reduce the price of battery replacements while also noting that it would introduce new software that gives insights into the health of an iPhone’s battery. While we don’t see the controversy impacting Apple’s iPhone business in the long run, it could create some near-term image issues for Apple.

We have a $180 price estimate for Apple, which is slightly ahead of the current market price.

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Customers Could Question Apple’s Motives 

Apple’s has categorized the decision as a power management feature that essentially reduces the processor’s clock speed to prevent iPhones from unexpectedly shutting down as their batteries age. Although Apple’s explanation is logical, some questions remain. For one, the company’s failure to previously disclose the practice could lead customers to believe that the company had an ulterior motive – getting them to upgrade their phones more often. Moreover, battery technology has been improving. For instance, Samsung’s S8 devices can reportedly hold 95% battery capacity after two years of use, indicating that batteries degrade much more slowly. This could raise questions as to why Apple was slowing down devices as recent as the iPhone 7, which launched just a few months before the S8.

Apple does have an incentive to slow down its phones for reasons beyond just power management. According to Guggenheim Partners, upgrade cycles in the smartphone industry are pushing towards three years, up from about two years previously. Apple has already been contending with slowing iPhone growth, with iPhone shipments peaking at 231 million units during FY’15, with shipments coming in at 216 million units in FY’17. Moreover, unlike Android vendors, who see relatively low customer stickiness, Apple’s loyalty rates are much higher, indicating that if its customers switch phones, they tend to buy new iPhones. This gives the company more incentive to push for upgrades.

Impact On Apple Could Be Minimal In The Long Run

That said, we believe that the developments are unlikely to impact Apple’s overall smartphone sales in the long run, given the company’s move to address the issues relatively quickly. Additionally, the controversy hasn’t exactly dominated the news cycles, limiting the PR damage for the company. That said, there could be some near-term negatives. Apple does face numerous lawsuits over the issue, and we will need to wait and see how they play out. Moreover, Apple’s move to lower battery replacement costs (from $79 to $29) could cause iPhone users to just swap batteries and improve the performance of their devices without buying a new phone.

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