Apple Inc.'s iPhone 5s Is Still Looking Good After 6 Months

Apple's (NASDAQ: AAPL  ) iPhone 5s hit the market on Sept. 20, meaning that the top-of-the-line iPhone has now been available for six months. After Apple introduced the iPhone 5s (and its cheaper sibling, the iPhone 5c), many pundits criticized it for a lack of innovation, arguing that the iPhone 5s wasn't much of an upgrade over the iPhone 5.

Despite all of the critics' complaints, Apple has had no trouble selling the iPhone 5s. Even after six months, sales trends remain solid, and the iPhone 5s is on pace to become the most popular iPhone ever by sometime this summer.

iPhone 5s usage continues growing
A few companies, including Fiksu and Mixpanel, collect and report usage data for each iPhone model. This usage data provides a rough window into sales trends: Usage for a new model will tend to rise as the installed base increases.

Today, about 20% of all iPhone usage comes from the iPhone 5s today (Photo: Apple.)

While there are minor differences in the Fiksu and Mixpanel data, both show the same general picture. The iPhone 5s reached 10% of the active iPhone base within about three months of launch. Fiksu places the 10% usage threshold on Dec. 22, while Mixpanel puts it slightly earlier, during the week of Dec. 9.

The iPhone 5s has nearly doubled its usage share since then. According to Mixpanel, the iPhone 5s currently accounts for more than 20% of all iPhone usage, while Fiksu puts its usage share at 18.8% as of Thursday (six months to the day after the on-sale date).

This makes it the third most popular iPhone today. The iPhone 5 is still the leader of the pack, representing about 32% of all iPhone usage. The iPhone 4s also retains a nearly 25% usage share. On the other hand, the iPhone 5s has now surpassed the older iPhone 4 in usage.

The iPhone 5s is likely to overtake the iPhone 5 in terms of usage by this summer. (Photo: Apple.)

The story behind the numbers
The iPhone usage data show that iPhone 5s adoption has settled into a steady growth rate in the past few months. Since the beginning of January, the iPhone 5s has gained 2.5-3 percentage points of usage share each month. The iPhone 5s is thus on track to overtake the iPhone 5 as the most popular iPhone by August, even allowing for a sales slowdown as the "iPhone 6" rumor mill heats up this summer.

The addition of China Mobile (NYSE: CHL  ) as an iPhone carrier partner is contributing to this sales momentum, but not in a game-changing way at this point. China Mobile sold roughly 1 million iPhones in February, which was the first full month that it was carrying the iPhone.

China Mobile will have a bigger impact on global iPhone sales this fall, when it should get the new iPhone at the same time as the rest of the world. The impact of China Mobile on iPhone sales will also grow over time as the carrier rolls out 4G service to more cities.

In the near term, a bigger factor affecting iPhone sales trends may be the changing nature of phone subsidies in the U.S., Apple's largest market. AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) recently implemented policies requiring contract customers to wait a full two years (rather than 20 months) before upgrading.

The timing of when these policies went into effect meant that very few U.S. smartphone users became eligible for upgrades last quarter. At Verizon, the policy change had its maximum impact between September and December; at AT&T it was between November and February.

A change in upgrade policies at Verizon and AT&T held back iPhone sales last fall.

With upgrade eligibility returning to normal this month, the upgrade cycle should be gaining steam in the U.S. The Fiksu and Mixpanel usage data suggest that this is occurring, but we will know more when Apple discusses its March quarter results next month.

Longer-term, it's not clear yet how the increasing prevalence of no-contract/no-subsidy plans in the U.S. will affect iPhone sales. For now, two-year contracts are still the norm, but even AT&T is starting to emphasize cheaper no-contract plans to compete more effectively against T-Mobile (NYSE: TMUS  ) .

While Apple's legendary customer loyalty reduces the likelihood of mass defections to cheaper Android phones, a move away from subsidies could still hurt Apple. The slowing innovation cycle means that loyal iPhone users are less likely to buy new phones every two years if they are paying the full cost.

Foolish bottom line
Critics may think that Apple has lost its innovation edge, but that didn't prevent the company from posting record iPhone sales last quarter. Usage data from Fiksu and Mixpanel indicates that sales momentum remains solid for the new iPhone 5s, which is on pace to overtake the iPhone 5 as the most popular iPhone this summer.

The next-generation iPhone is expected to have a larger screen, which should drive yet another year of record sales. Longer-term, bears have raised some valid concerns about how long Apple can keep iPhone users on a frequent upgrade cycle without cutting prices. However, by then, Apple will hopefully have new product lines that it can lean on for growth.

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Read/Post Comments (8) | Recommend This Article (4)

Comments from our Foolish Readers

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  • Report this Comment On March 23, 2014, at 10:28 AM, Renee wrote:

    I don't get it: did anyone actually think that the iPhone 5S portion of the total iPhone pie would actually shrink (and how would it be done, exactly? Noone buys the 5C, so that doesn't count, and the only other way is to physically destroy a huge proportion of the 5S's out there)?

    What's the point of this article? And how is this looking good, then?

  • Report this Comment On March 23, 2014, at 2:56 PM, deasystems wrote:

    So no one buys the iPhone 5c, Renée? Good one!

    As it turns out, the iPhone 5c outsold the ostensibly successful Samsung Galaxy S4 on half of America's top carriers, and pushed every other Android phone out of the top U.S. sales charts entirely, from the first month it went on sale.

    Yes, the iPhone 5c counts, Renée—big time.

  • Report this Comment On March 23, 2014, at 3:50 PM, HiramWalker wrote:

    If you classify 5c sales as horrible, you must classify Galaxy S4 as more horrible.

    appleinsider.com/articles/14/03/22/apples-iphone-5c-failure-...

  • Report this Comment On March 23, 2014, at 4:46 PM, Renee wrote:

    HiramWalker:

    LMAO @ quoting Appleinsider as a source

    Why not use Iranian government propaganda as a source on human rights?

    The 5C is a failure. don't look at its launch month sales, look at how many units were sold since it was launched, and look at the same time period at sales of other phones. Then look how well it did in its target market, China, where people don't even know it exists (well, almost). That's why Apple had to release an even cheaper iPhone with 8GB: because China just isn't biting. At 16M unit sales estimated for the year, this falls below the worst-case scenario of 3/4 of analysts out there (most of whom said that it'll be 20M and up)

  • Report this Comment On March 23, 2014, at 5:00 PM, deasystems wrote:

    @René: "… don't look at its launch month sales, look at how many units were sold since it was launched."

    Good advice! Do you have a data source?

    "…look how well it did in its target market, China."

    The iPhone 5c's target market was the world.

    "At 16M unit sales estimated for the year, this falls below the worst-case scenario of 3/4 of analysts out there (most of whom said that it'll be 20M and up)."

    If you look at all the tech analysts' opinions, this is actually just about at the middle or average of those estimates. Half predicted higher than 17 million, and half predicted lower.

    See here: http://tech.fortune.cnn.com/2014/03/20/apple-china-mobile-ip...

  • Report this Comment On March 23, 2014, at 5:51 PM, Renee wrote:

    @deasystems

    Yes, I looked at the link. Most analysts LOW estimates are above the 16M number, not to mention par or high estimates. Only a few analysts' low estimate is below 16M.

    The 5C was aimed at China, as it was meant to be a low-priced device for that market. It didn't succeed, which is why the iPhone 4 was put back into production, as well as an 8GB variant of the 5C. I don't think the issue in China is price (per-se), but rather awareness of value, so putting in those two models into production, even if cheaper, won't endear them to anyone. Infact, it will erode Apple's premium image further.

  • Report this Comment On March 23, 2014, at 8:25 PM, deasystems wrote:

    @Renée: "Most analysts LOW estimates are above the 16M number, not to mention par or high estimates. Only a few analysts' low estimate is below 16M."

    Are we looking at the same thing? Seven of nineteen are below 16 million and another three—for a total of 10 out of 19—are at 17 million or lower.

    You claimed that, "The 5C was aimed at China, as it was meant to be a low-priced device for that market."

    The 5C was aimed at the world. As wikipedia noted (with citations), "The iPhone 5C was rumored to be the long-awaited inexpensive iPhone; however, it is actually a mid high-end smartphone which competes with the HTC One Mini and Moto X. Like previous iPhones it does not compete in the feature phone segment nor the unsubsidized/prepaid category."

    You then claimed that, "It didn't succeed, which is why the iPhone 4 was put back into production."

    That has not been confirmed, and even if it's true, the rumor is that production is aimed for India, Brazil, and Indonesia.

  • Report this Comment On March 23, 2014, at 8:52 PM, TMFGemHunter wrote:

    Thanks for the comments, everybody.

    @Renee: The point of the article was the speed at which iPhone 5s usage share is rising. It hit 10% after about 3 months; if it was now at only 16%, that would indicate that demand was sliding. Instead, the 5s usage share is already up to 19%-20%. Even assuming that sales will slow down this summer, the 5s should have no trouble passing the iPhone 5 in terms of usage/sales.

    I think it's obvious that the 5c wasn't a smashing success. However, it's hard to call it a failure, either, without making some questionable assumptions about what its purpose was. It was widely reported in the media that the iPhone 5c was a cheaper iPhone meant for China. However, it wasn't cheaper than the "second-best" model in Apple's iPhone lineup had been in prior years. That would suggest it wasn't really meant for China, either.

    If Apple hadn't released the 5c, it would have just dropped the iPhone 5 price by $100. Since the iPhone 5 was more expensive to produce (aluminum vs. plastic casing), that would have meant Apple was earning less money on each "midrange" iPhone it sold. Unless you think that Apple would have sold significantly more phones this year with a $99 iPhone 5 vs. a $99 iPhone 5c, then the 5c basically did its job.

    The 5c could still be a big seller in China -- in 2015. There's a chance that Apple will take its price down to a true mid-range level then (something like the equivalent of $400). That's the only way that it would become a really big seller in China.

    Adam

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