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The iPhone's Greatest Weapon: Retention

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Before we know it, Apple (NASDAQ: AAPL  ) could begin to regain market share in the smartphone market -- at least that's what a recent study from Yankee Group asserts.

The premise is simple: When Google (NASDAQ: GOOGL  ) Android ownership peaks, the iPhone's 91% retention rate versus Android's 76% rate will drive iOS market share gains. Retention matters, Yankee Group argues. Yet, oddly, Apple's unparalleled customer loyalty has gone largely unnoticed in most market-share forecasts. It's something that should be closely considered in any sales projections.

Even more surprising is the steepness of gains Yankee Group expects Apple to make over the next five years. Check it out.

Source: Yankee Group survey.

According to this forecast, iOS will surpass Android in U.S. market share by 2015. Even more shocking, iOS is predicted to have 42% market share compared with Android's 34% by 2017.

Retention will drive sales
Apple may be losing global market share among smartphone platforms, but that's not because sales are declining. iPhone shipments rose 6.6% in the first quarter of 2013 from the year-ago quarter.

The loss of market share comes as lower-cost phones using the Android operating system make outsized gains in emerging markets. This growth, of course, can't last forever. Eventually, these bargain-hunting markets will become saturated and retention will be the main driver of sales. Yankee Group suggests that the U.S. market is already hitting this point.

The U.S. still loves iPhones
These projections might seem unrealistic at first glance. After all, Apple's market share is getting crushed on a global scale. The iKing's share of worldwide handsets is down to 17.3% in the first quarter of 2013 from 23% in the year-ago a quarter. But here's the catch: The iPhone is still the most popular phone in the U.S. -- by far.

Don't believe me? Check out this tidbit from Yankee Group's study: Despite press excitement about Samsung, Apple continues to gain share against all Android devices. While Samsung may have garnered huge press attention from its Galaxy S4 announcement, consumer intent to buy Samsung phones is less than half that of iPhones in the United States. In fact, iPhone intent to buy is statistically tied with the intent to buy all Android phones combined.

Not convincing enough? Here's another fact from the study to chew on: "18 percent of Android owners intend to switch to Apple with their next smartphone."

Then, of course, there is the overwhelming evidence from the globally recognized consumer satisfaction study by J.D. Power and Associates:

Conservatism is an investor's best friend
Yes, Yankee Group's projections are encouraging for Apple investors. But take them with a grain of salt. The problem with the tech sector itself, as Warren Buffett has often explained, is the high degree of uncertainty in such a fast-changing environment.

With that said, Apple still trades conservatively, at about 11 times earnings. So uncertainty is already a major factor in Apple's stock price. On that note, if you're bullish on Apple, the study could be another reason to hold or even add to your Apple shares.

Apple has a history of cranking out revolutionary products ... and then creatively destroying them with something better. Read about the future of Apple in the free report, "Apple Will Destroy Its Greatest Product." Can Apple really disrupt its own iPhones and iPads? Find out by clicking here.

Read/Post Comments (2) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 08, 2013, at 5:06 AM, st0815 wrote:

    So you take the one national market in which a global company does best, and base your predictions on that.

    * What about e.g. Germany where Android holds 61% and Apple at 21%?

    * What about China where Apple appears to be stuck?

    * What about the margins which are getting squeezed?

  • Report this Comment On May 08, 2013, at 1:50 PM, Gaeseki wrote:

    Motly Fools is pathetic Apple pumper !!

    US Pentagon has Chosen Samsung GalaxyS4 OVER iPhone why?

    Galaxy Smartphones are known as the MOST powerful superior smartphone than any other phones on the planet!!! Not to mention GS4 are twice as faster as the iPhone5, Galaxy has literally killed the flimsy iPhone in every Torture Tests.

    "NEWS: Pentagon Approves Samsung Devices for Military Use- 5/02/2013.

    "The DoD security requirement guidelines for mobile operation systems are one of the

    highest security standards in the world and this marks the First Time for

    Android-Powered GalaxyS4 device to meet such high security


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