Much more concerning for Apple is that the longer the remaining 60% of the installed base delays an iPhone upgrade, the longer the upgrade cycle is extending. It is not unreasonable for the iPhone installed base to extend out to four or even five years. Not surprisingly, these trends were never accurately captured in consumer survey research reports. This is unchartered territory for Apple.
iPhone Growth Catalysts Are Disappearing. While there are legitimate reasons for explaining some of the iPhone's recent sales declines, much more concerning is how the largest multi-year growth catalysts for the iPhone business are either disappearing or turning out to be much less attractive than first thought.
1. Mobile carrier expansion is slowing. A significant contributor to iPhone sales growth over the years has been mobile carrier expansion. As Apple brought the iPhone to new mobile carriers, the device's addressable market continued to expand. In early 2014, China Mobile began selling the iPhone for the first time, opening up the iPhone to hundreds of millions of new consumers of which tens of millions were in a position to buy an iPhone right out of the gate. There are no additional carriers like China Mobile waiting in the wings where Apple can expand the iPhone's addressable market. Most of the world's population is now on a mobile carrier that sells iPhone.
2. India is not the next China. India has recently been positioned as the next big growth engine for iPhone. However, it is becoming clear that this optimism has been grossly misplaced. Cook even admitted on Apple's 2Q16 earnings call that India's smartphone market is where China was seven to ten years ago. That comment is not too reassuring for anyone thinking India would pick up the sales slack from a slowing China market. The country is just not in a position to represent a significant driver for iPhone unit sales given Apple's current pricing strategy.
3. High smartphone saturation rates. High smartphone saturation rates in the U.S. and other developed countries have removed feature phone users as an iPhone growth catalyst.
4. Declining number of premium Android switchers. Apple has been very successful over the past year and a half appealing to high-end Android switchers craving larger iPhones. However, there are signs that the easy growth in terms of Android switchers is ending. There are only so many premium Android users in the marketplace, and Apple will need to begin appealing to Android users in lower price brackets to achieve the same kind of user growth. During 2015, there were approximately 1.2 billion people that bought a non-iPhone smartphone, up from a little more than 1 billion in 2014. Of that total, approximately 100 million were likely in a position to even buy a flagship iPhone. This does not exactly leave much room for Apple to grow the number of Android switchers year after year.