Apple Could See a Flurry of Upgrades With the iPhone 6

Many iPhone users have older versions of the phone, but will they upgrade to a newer iPhone or a different phone?

May 22, 2014 at 11:30PM

Apple (NASDAQ:AAPL) has a slew of iPhone users who are ready for an upgrade. It will be imperative, however, for Apple to keep its mostly loyal consumer base from switching to phones using Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) Android, such as those made by Samsung (NASDAQOTH:SSNLF). Samsung is coming off a disappointing quarter, however, while Apple is coming off a good one. Moreover, Apple's iPhone users are not easily enticed to switch operating systems.

An upgrade bonanza on the way
All the major carriers, such as Verizon, AT&T, and Sprint, have many users with older iPhone models, chiefly the iPhone 4 and 4s. T-Mobile is the only exception, with its iPhone 5c and 5s users making up 41% of its total iPhone user base.

For Verizon, over half (56%) of its iPhone users still have the iPhone 4 and 4s models. Moreover, 24% of Verizon's iPhone users still use the iPhone 5, and an even smaller proportion, 17%, use the iPhone 5c and 5s models. Therefore, a large number of users could upgrade to the new iPhone 6 when it is released.

The iPhone 4 and 4s models are currently used by 42% of AT&T iPhone users, while 25% use the iPhone 5 and 23% have the iPhone 5c and 5s versions. So, a large proportion of AT&T iPhone users could upgrade to the new iPhone 6, another possible boon to Apple's earnings.

Sprint's iPhone 4 and 4s users account for 47% of its total iPhone user base. Moreover, 24% currently have the iPhone 5 and 27% use the 5c and 5s versions of the phone. So, a substantial portion of Sprint's iPhone users could be making an upgrade as well, like Verizon and AT&T's.

Although not the largest percentage of its iPhone user base, 35% of T-Mobile's iPhone users still have the 4 and 4s models. Further, 24% have the iPhone 5 and 41% use the 5c and 5s models. Therefore, a large percentage of T-Mobile's users could also be making an upgrade when the iPhone 6 comes out.

Recent results
Apple increased its revenue, income, and EPS by 4.7%, 7.1%, and 15.2%, respectively, in 2014's second quarter over 2013's. The company generated $10.2 billion of income, equating to $11.62 per diluted share on $45.6 billion in revenue. In contrast, Samsung's earnings have fallen for two straight quarters. Moreover, the South Korean company's revenue decreased considerably, by 9% in its last quarter.

Keeping users on Apple
Most of the carriers have a large number of iPhone users who need upgrades from earlier versions of their phones. The key for Apple is keeping those users from switching to Android or other systems, and maintaining its loyal customer base. A study by WDS, a company that works in customer care for the mobile industry and a division of Xerox, revealed that 76% of people who have an iPhone replace it with another iPhone. Based on that statistic, it seems Apple has little to worry about in terms of users switching companies or operating systems. Therefore, its new iPhone 6 should perform well when it hits the market.

Foolish takeaway
Apple's recent results and past customer loyalty should calm investors' fears that Apple is headed for a downturn. Further, a rumored acquisition of Beats has brought some excitement back to the company and could be used for its future products. With 76% of Apple iPhone users keeping their iPhones after replacement, and many of them needing one, the future looks bright for Apple and the company should realize a flurry of upgrades when it releases the iPhone 6.

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Andrew Sebastian has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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