It is no secret that Apple's (AAPL +0.30%) iPhone has lost some of its mojo in recent years. Annual sales of iPhones fell in 2016 and year-over-year shipment growth has failed to impress ever since.
The bad news is that Apple's iPhone shipments are expected to show a drop for 2019. But the good news is that a turnaround looks like a realistic possibility in 2020 considering the latest iPhone sales trends.
Let me explain why.
Apple is dominating the premium smartphone space
According to market research firm Counterpoint Research, the iPhone XR has been the top-selling device globally for a year now. Aside from the third quarter of 2018 (when the device was launched), the iPhone XR has topped the charts in every subsequent quarter. This specific model controlled 3% of the global smartphone market in the third quarter of 2019, with the second-place Samsung Galaxy A10 close behind at 2.6%.
Image source: Apple.
The iPhone XR's dominance is a result of Apple's strategy of making the device more accessible to customers through reduced pricing in key markets such as India and China. It would be safe to say that substantial discounts lured more customers into the Apple ecosystem. Those customers might have been apprehensive of shelling out big bucks for an iPhone earlier on thanks to the presence of competitively priced and well-equipped Android devices.
But now that Apple has knocked down the pricing barrier to some extent, those aspiring to buy an iPhone have opened their wallets. In India, for instance, Apple was able to corner more than 51% of the premium smartphone market in the third quarter of 2019 thanks to aggressive pricing, according to IDC data.
The good part is that the iPhone 11 has managed to keep up the good work. Counterpoint Research points out that the iPhone 11 was in the fifth position on the list that the iPhone XR topped, cornering 1.6% of global smartphone shipments in the third quarter. And it managed to do that in less than two weeks since it was launched at the end of the quarter (on Sept. 20). This gives us a clue as to why the iPhone is set to dominate in 2020 as well.
Getting the simple things right
There's a simple reason the iPhone 11 has clocked such an impressive ranking in such a short time. Apple took a page out of the iPhone XR's pricing strategy book and launched the iPhone 11 at a lower price point than last year's entry-level model. The results are there for everyone to see.
Supply chain checks indicate that component suppliers are struggling to meet the booming iPhone 11 demand. Bloomberg reports that camera sensor supplier Sony (SNE +1.57%) has ramped up for round-the-clock production and it's not enough to meet demand. Of course, Apple is not the only customer Sony caters to. But it does give us an idea about how strong iPhone 11 demand could be, as Sony has been investing aggressively to expand its chip-making capacity.
Now, analysts are saying Apple is well-positioned to sustain this terrific momentum in 2020 as well. That's because Apple will continue its aggressive pricing strategy next year even if its devices come equipped with 5G (fifth-generation) capability. Noted Apple analyst Ming-Chi Kuo recently wrote in a research note (seen by MacRumors) that 5G-equipped iPhones won't substantially increase in price.
Apple is reportedly planning to offset the potential increase in 5G-related costs through a reduction in supply chain expenses. So don't be surprised to see Apple's 5G smartphones sell like hotcakes, as the company is reportedly on the verge of a massive upgrade cycle.
According to Wedbush Securities, over a third of the 900 million iPhones currently in use will be upgraded to 5G smartphones. It expects 200 million of those upgrades to take place in 2020 when the 5G-capable iPhones are rumored to be released. This means Wedbush anticipates double-digit percentage iPhone shipment growth next year, as Apple reportedly shipped 185 million units in 2019.
What's more, Apple should dominate the 5G smartphone space in 2020. So it makes sense to predict that the iPhone will continue to be the dominant smartphone in the new year, as a combination of aggressive pricing and 5G could attract both new and existing customers, helping Apple remain a top growth stock.
