Will People Care About The Next iPhone?

by Trefis Team
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This fall, Apple (NASDAQ:AAPL) is likely to launch multiple new iPhones, which will feature 5G wireless technology and a potentially significant design overhaul. While such a launch would typically create a big buzz and a sizeable upgrade cycle for Apple, the spread of the Coronavirus indicates that things may be quite different this year. There is little reason for people to upgrade costly discretionary items such as smartphones right now, as the health crisis continues and the economy heads into what is likely to be a deep recession.

Our dashboard Apple downside of $140 discusses a downside scenario for Apple’s stock with expectations for iPhone, Wearables, and Services businesses.

2020 Crisis Will Be Different From 2008 For Apple 

Apple largely powered through the 2008-09 recession, as the iPhone was just recently launched (mid-2007) with shipments growing from under 1.5 million units in 2007 to ~12 million units in 2008 and ~21 million units in 2009. However, this time around it could be much tougher for Apple to push its new devices. In developed markets, upgrades are typically the biggest driver of smartphone sales given the high levels of smartphone penetration. People have been holding on to devices for longer  (33 months in the U.S.) and it’s only likely that this trend will accelerate through the current health and financial crisis, hurting Apple’s prospects. The possibility that the new devices will be more expensive than Apple’s already pricey flagship devices (starting at $1,000) is also unlikely to help. Things could be worse in emerging markets, where iPhones are viewed as luxury products, as the crisis is likely to have a more severe impact on consumer spending.

Carriers’ Promotions Will Be Key

Wireless carriers have been investing significantly to upgrade their networks to 5G and their plans appear to be largely intact despite the Coronavirus, considering the growing need for bandwidth and also due to the fact that carriers’ cash flows are likely to hold up fairly well through the crisis. As carriers will depend on customers upgrading to the latest 5G devices such as the upcoming iPhones to sell their latest 5G plans, it’s likely that device promotions will be more attractive compared to previous years. The higher promotional spending from carriers could be key for Apple to drive iPhone sales, particularly in the U.S.

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