In a normal year, between 1 million to 2 million iPhone users decide to give their aging devices a new lease on life with a fresh battery -- a move that lengthens the time before they give in to the pressures of the upgrade cycle and pony up for a newer model. Last year, Apple (NASDAQ:AAPL) offered a $29 battery replacement program -- $50 cheaper than normal -- and was a bit shocked when 11 million customers took advantage.
In this segment from MarketFoolery, host Mac Greer and senior analysts Emily Flippen and Jason Moser discuss the impact of that replacement program on the company's bottom line, what the customer response says about where Apple should be directing its efforts, and where they'd like to see changes in future iPhones.
A full transcript follows the video.
This video was recorded on Jan. 16, 2019.
Mac Greer: Let's talk Apple. You have an iPhone. I have an iPhone. Emily, do you have an iPhone?
Emily Flippen: I do have an iPhone.
Greer: What model? What vintage?
Flippen: I had a 4S up until a few months ago when I upgraded to a 7S -- a refurbished 7S.
Greer: Wow. I've got a 6S. Jason, what do you have?
Jason Moser: My wife and I just upgraded from 6S to the new X.
Greer: OK, Mr. Fancy Pants.
Moser: Well, let's wait a minute.
Greer: If you have an iPhone and you had your battery replaced this past year, you are not alone. Apple replaced 11 million batteries in 2018 during its $29 replacement program. During a normal year, Apple expects to replace between 1 [million] to 2 million batteries. So, they replaced around 10 times as many batteries as they expected. That news just came out. Apparently, gone are the days when Apple can assume that everyone wants the newest model.
Moser: I did that battery replacement on the 6 when they were offering that thing because they were pulling back on the performance of the phone. I took advantage of replacing that battery on the 6. And it did extend the life of it. I thought it was actually going to be a little bit better. It was OK.
Greer: How much of a threat is this to the business? There's been a lot of talk about China and the slowdown in China. But when I see this news as an Apple shareholder, I think this worries me even more. By the way, I'm not getting a new iPhone. You've got to bring back the headphone jack and you've got to improve the battery life.
Flippen: Well, you might be alone in that regard. [laughs] I have to wonder, do people who work at Apple use Apple phones? How could they only think that about a million people would want to replace it for the batteries? I know personally, my phone hardly makes it through a day with the battery life. It shouldn't have been a surprise for Apple that so many people got their batteries replaced.
But, you know what? I don't think it matters that much. Apple has such a strong ecosystem. Push came to shove when I was getting rid of my old 4S. I was like, I could get any phone on the market, but it's just so much easier for me to go ahead and get that refurbished 7. It was about the same price as an alternative. And, yeah, the alternatives are a little bit newer, but the process I'd have to go through to transfer, it's like, eh, I'll just bite the bullet.
Greer: So, you think this story for investors, a bit of a nothing burger? Does it matter?
Flippen: It might be a bit of a nothing burger, but I don't think it bodes well for whatever person made that original estimate. I think somebody lost their job.
Moser: [laughs] Yeah, it's one where you think, as consumers, this is great. The phones get better over time. The phone should last longer over time. That's just the evolution of tech. But if you're an investor, that kind of sucks, because that means people aren't upgrading their phone as much as they used to. So, if Apple wants to get people upgrading more often, they've got to offer more incentives. Eventually, what that all plays out into is their ability to raise prices on the phones in one form or another. We're hitting that peak here, because I think we're hitting the peak of what these phones can do. I'll say, going from the 6 to the XR, I'm still not impressed with some of the user interface. I think Apple Pay took a major step back, they added more friction to that process, in a process where they need to take away as much friction as possible. The Face ID is, eh. We're at a point now where the biggest advancements they can make in these phones, in my opinion, is to make the battery last as long as it can. And that, to me, has been the greatest part about going from the 6 to the X, now I have a phone that can make it through all day without having to recharge it. But I know those days are limited, too.
To Emily's point, Apple is more than just the iPhone. I know a lot of investors will love to make a big deal out of this. Let's step back and take a little bit of a longer-term view there and recognize all of the strengths of this business still. I think they're going to be OK.
Greer: Any chance I get the new model, I get my headphone jack back?
Moser: I really wish.
Greer: I'm grieving still.
Moser: I applaud them for sending me the headphones with the new jack. But I ran into the situation, I was on a plane the other day, and I'm thinking, "I'd love to plug in and watch one of the movies on the screen there." And guess what?
Greer: You couldn't do it.
Moser: I couldn't do it.
Greer: You could do it with my headphones, and my rotary phone.
Moser: I could have. That was a bit of a downer. These are the advancements, you have to make these trade-offs, I guess. What's more important, the battery or the headphones?
Emily Flippen has no position in any of the stocks mentioned. Jason Moser owns shares of Apple. Mac Greer owns shares of Apple. 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.