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This Statistic Shows Why Apple Inc.’s iPhone 6 Will Be Huge

Apple (NASDAQ: AAPL  ) is likely unveil the next iPhone on Sept. 9, according to a variety of major media outlets. The handset, which could be defined by its larger screen, is expected to set sales records when it debuts later this year: According to The Wall Street Journal, Apple is prepared to move as many as 70 million-80 million new iPhones by the end of December.

If so, it will be a huge year for Apple's handset, especially given the recent difficulty rival Samsung (NASDAQOTH: SSNLF  ) has experienced. Nevertheless, such figures are made possible by a key statistic.

Apple's customer loyalty is unmatched

According to Morgan Stanley Research, Apple is unmatched when it comes to customer loyalty, retaining 90% of iPhone owners as recently as March. Samsung's customers are also fairly loyal, but to a much lesser extent -- Samsung's customer retention is around 77%.

Morgan Stanley's research is consistent with other findings. In February, WDS released the results of a survey it had conducted on smartphone buying habits. Although its results were not as bullish as Morgan Stanley's, WDS found that 76% of Apple's customers purchased a new iPhone when it came time to upgrade -- only 58% of Samsung's customers bought another Galaxy.

There are many factors that may explain this loyalty -- the quality of Apple's products, for example, or the stickiness of its ecosystem. Most notably, unlike Samsung, Apple has exclusive rights to its mobile operating system -- customers that want a phone powered by iOS have no choice but to purchase another iPhone; Galaxy users that want to stick with Android are free to choose a variety of competing handsets from rival manufacturers.

A larger iPhone could spark a wave of upgrades

Given its high degree of customer loyalty, it's logical to expect Apple's next iPhone to capture the bulk of existing iPhone users, particularly if they're attracted to its larger screen.

In another piece of research, Morgan Stanley noted in May that -- at least in the U.S. -- older-generation iPhones make up much of Apple's current install base. In fact, the iPhone 4 and iPhone 4s account for nearly half of the iPhones currently in use.

Many of these iPhone 4 and iPhone 4s owners could be prime customers for Apple's next handset, especially if they purchased their iPhones around their respective debuts (in 2010 or 2011). However, many of these handsets were undoubtedly purchased more recently, as even now Apple continues to offer the iPhone 4s.

A better measure may be to consider Apple's iPhone sales in the fourth quarter of 2012, as those consumers would be coming up on the end of their two-year contract agreements. During that quarter (which was Apple's first quarter on a fiscal year basis), Apple sold nearly 48 million iPhones.

Should 90% of those customers purchase another iPhone later this year, that would result in sales of over 43 million. On top of that, sales in that quarter did not include the more than 5 million iPhones Apple sold during the iPhone 5's first weekend on sale in September 2012.

At the same time, rumors of a larger iPhone 6 have been swirling for months, and many of Apple's customers (who may have otherwise already upgraded) could have delayed their purchase in the hope of snagging a larger iPhone. With a larger screen variant, Apple could also be poised to poach some of Samsung's best customers.

The last factor, and perhaps the most significant one, has been the growth of no-contract plans. According to Apple's CEO Tim Cook, more than 75% of the iPhones Apple sold last quarter were to customers on an unsubsidized plan. Although these customers receive a discount for holding on to their existing phones for a longer period of time, they can also upgrade more quickly -- at least every year, if not more often.

In the past, it would have been appropriate to assume that Apple's prior-year customers would not upgrade to the latest model -- today, that's far from true. In the fourth quarter of 2013, Apple sold 51 million iPhones; the majority of those buyers will probably not upgrade, but millions could.

The iPhone 6 in context

Although smartphones are approaching saturation, Apple's iPhone 6 is still likely to be the best-selling iPhone yet. Given the intense loyalty of Apple's customers, it's fair to assume that many of them will upgrade.

If Apple sells 65 million iPhones in the fourth quarter (factoring out iPhones that will be sold at the end of September), it would represent an annual increase of more than 27%. That may be too aggressive, but it certainly seems possible.

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Read/Post Comments (4) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On August 10, 2014, at 8:20 AM, henrystar wrote:

    I've not seen any discussion anywhere about whether you will still be able to get an iPhone which is the same size screen as at present. I'm sure there are millions of people who do not WANT a bigger iPhone. Of course they have no where to go...

  • Report this Comment On August 11, 2014, at 9:11 AM, mds wrote:

    Great synopsis!

    Refreshing after reading "The Bibey Post" and Chris' attempt to compliment AAPL on yet another misstatement. He contends they are late to the game; but can catch up. LOL

    AAPL has not been first with much; other than evolution of what they make; which is always perfect.

    MP3 preceded I-Pods

    Blackberry preceded the I-Phone

    Not sure who was first in Pads but it was not the I-Pad.

    AAPL is the debutant of the ball. They arrive fashionably late; but immediately become the bell of the ball. Because when they arrive; they always do so better than the competition, who then "never" catches up.

  • Report this Comment On August 17, 2014, at 9:21 PM, DukeMontrose wrote:

    As a long term investor this is uppermost in my mind:

    >>> Superior management produces superior strategies which translate into superior profits.

    Dear fellow fools =

    Please take a quick survey among the officers of Apple, Inc. That "superior management". More than a handful can be correctly labelled as geniuses - proven their worth with real accomplishments.

    In most companies, we are delighted to find one, or possibly two geniuses. AAPL has more than a handful.

    Just think of one = a recent arrival = Angela Ahrendts who in her previous job turned a tired old brand = Burberry's = into a fashion icon + in the process more than doubling Burberry's profits. Within weeks of arriving in Cupertino, she managed to snag a European copyright for the Apple stores she wasted no time starting to rejuvenate.

    Or just think of one of the many seminal moves AAPL initiated this year = for example, snagging IBM, its old rival, at apparently little or no cost, to be its super-sales force among the top few thousand companies on our planet.

    Thus I can cut out the distracting noise + relax as I watch AAPL marching steadily, without any fireworks, toward my $150 PT by the end of next year. My leaps swelling to 3 to 5 baggers within a time frame of less than 24 months.

    Relax to-day, as my account got a wee boost from my highest dividend so far, automatically reinvested in AAPL stock (without having to pay a fee)!

    Did Walt Disney remark = its fun to do the impossible on a daily basis? Likewise, dear fools, its fun to watch

    AAPL's 'best is yet to come' from my penthouse. Along with the sunset in the Gulf of Mexico = absolutely spellbinding to-night...

    My life entering into its 10th decade, is a prolonged sweet spot...

    Thank you, fellow fools.

  • Report this Comment On August 17, 2014, at 9:29 PM, DukeMontrose wrote:

    OOps = let me clarify:

    Angela obtained a European copyright for the physical lay-out/design of her Apple stores...

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Sam Mattera

Sam has a love of all things finance. He writes about tech stocks and consumer goods.

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