Late last year, Apple (NASDAQ:AAPL) admitted that it had been throttling the performance of iPhones with older batteries in an effort to keep these devices from shutting down unexpectedly.
The problem is that lithium-ion batteries -- the type of rechargeable batteries used in Apple iPhones as well as other smartphones, tablets, and notebook computers -- degrade over time.
The more worn a battery is, the less of a charge it can ultimately hold, meaning that the effective capacity of the battery declines. On top of that, a battery that's been sufficiently, as Apple puts it, "chemically aged" might not be able to provide enough power in a given amount of time to the device.
This, Apple says, can lead to "unexpected shutdowns."
To avoid such unexpected shutdowns on devices with worn-out batteries, Apple says that it delivered a "software update that improves power management during peak workloads" last year. That "power management" is effectively a euphemism for reducing the peak performance of the processor.
This was hardly a bad solution on Apple's part, as it allowed individuals with older devices sporting worn out batteries to keep using their devices, albeit the devices were measurably slower (though this did lead some to think that Apple was actively trying to degrade the user experience of older devices to drive sales of newer iPhones).
Ultimately, the backlash that Apple received once this information was widely known led Apple to significantly reduce what it charges for a battery replacement (it's now just $29 compared to $79 previously) and to commit to exposing diagnostic tools to customers to allow them to check the health of their iPhone batteries.
This, one analyst thinks, will lead Apple to see reduced iPhone sales.
A 16 million-unit reduction in iPhone shipments
Analyst Mark Moskowitz (via Bloomberg) estimated that 519 million iPhone owners can take advantage of Apple's battery replacement offer. The analyst believes that the "most likely scenario" is that 10% of those eligible for battery replacements take Apple up on its offer and that 30% of them forgo buying new iPhones this year.
The math works out to almost 16 million iPhones.
If we assume that those 16 million iPhones would've been sold at Apple's iPhone average selling price during fiscal year 2017 of $652, then Apple could be looking at around $10.4 billion in lost iPhone revenue as a result of this battery replacement program.
That wouldn't be game-ending for Apple's iPhone business, which generated nearly $142 billion during fiscal year 2017, but that kind of revenue loss (as well as the associated profits) wouldn't be good.
How Apple can stem the losses
Ultimately, for Apple to effectively mitigate the potential sales losses from this battery replacement program, it needs to continue to focus on putting out new iPhones that people want to buy out of want rather than out of need.
Apple has historically done a good job on that front, offering significant performance and feature upgrades with each new generation of iPhone. On top of that, with each new generation of iPhone that Apple releases, prior-generation models come down in price, making them more accessible.
There will always be customers who are extremely financially disciplined and will look for ways to prolong buying new iPhones (as well as other high-priced consumer electronics devices), and Apple's cheaper and now more widely publicized battery replacement program could very well lead those customers to hold off on buying new iPhones.
But, at the very least, as long as Apple treats those customers well (and I think Apple ultimately did the right thing with this whole situation), when it does come time for those users to buy new smartphones, they'll be more likely to pick an Apple iPhone.
Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.