October 22, 2020

Apple ‘significant’ iPhone upgrade potential in China: Morgan Stanley


A woman using a smartphone walks past an Apple store in Shanghai, China, May 9, 2019.

Qilai Shen | Bloomberg | Getty Images

Apple has “significant iPhone upgrade potential” in China ahead of the launch of its its next flagship smartphone, Morgan Stanley said in a note on Wednesday. 

Analysts at the investment back said that just over 68% of the iPhone install base in China is comprised of devices that are at least 2 years old. That’s up nearly 8 percentage points from last year, and more than 20 percentage points from 2017, according to data collected by Morgan Stanley. 

“In our view, this speaks to the significant iPhone upgrade potential in China, the largest in at least 4 years, and helps support our bullish call that iPhone shipment growth can meaningfully accelerate in FY21 (fiscal year 2021),” Morgan Stanley said in a note.

That upgrade cycle will be driven by a number of factors. Firstly, Apple’s next iPhone is expected to be able to connect to 5G networks

Secondly, “improving affordability,” thanks to the launch of the cheaper second generation iPhone SE and “expectations for stable pricing” for the next device, could also drive upgrades.

Thirdly, “increased adoption of trade-in and financing programs” could help Apple, Morgan Stanley said. 

Bullish sentiment helped Apple become the first publicly traded U.S. company to reach a $2 trillion market capitalization on Wednesday. Apple shares are up over 57% this year. 

‘Once in a decade opportunity’

Other Wall Street analysts are bullish about the upgrade cycle for Apple’s next iPhone. 

“5G will drive a three-year device upgrade cycle along with 5G-related benefits of opening new mobile use cases,” Loup Ventures’ Gene Munster said in a note on Wednesday. He said this was one key theme to Apple’s market cap continuing to rise above $2 trillion.

Daniel Ives of Wedbush Securities called the next iPhone a “once in a decade opportunity over the next 12-to-18 months.” 

“We estimate roughly 350 million of Cupertino’s 950 million iPhones worldwide are in the window of an upgrade opportunity,” Ives said in a note published earlier this month.

“China remains a key ingredient in Apple’s recipe for success as we estimate roughly 20% of iPhone upgrades will be coming from this region over the coming year. To this point we are seeing considerable strength from the China region over the last few months, a dynamic we expect to continue heading into the next 6 to 9 months.”



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