In this day and age, a person can barely wake up without reaching for a smartphone. And in the U.S. it's highly likely that the device is an iPhone. According to Statista research conducted in March of this year, more than 113 million smartphone users own an iPhone.
Thanks to many of those users, Apple (AAPL 1.19%) just reported its biggest year of iPhone sales in history. The tech giant brought in nearly $192 billion in revenue from its smartphone line over the past year. But 2022 could be even bigger for Apple. Here are three reasons why.
1. A massive user base ready to upgrade
There are now over 1 billion iPhones in use around the world, Apple CEO Tim Cook shared during the company's first-quarter earnings call in January. That's a substantial user base that will replace their phones regularly.
While we saw an extension of the upgrade cycle time over the last few years, that appears to have stabilized in 2021. Citi analyst Jim Suva says replacement cycles are remaining the same or may even be shortening. "Assuming that replacement rates hover around three years for smartphones and modeling for some of these upgrades to be refurbished devices, we believe that this suggests that the installed base upgrades still have room to translate into unit growth," Suva wrote in a note earlier this month.
2. 5G will be a major upgrade catalyst
In 2020 5G will go mainstream. U.S. carriers are rapidly building out their 5G networks, and international markets aren't far behind. China is on an absolute tear with its 5G buildout; 150 million Chinese already use 5G phones, and Apple is winning a lot of new phone purchases in the country. It was the No. 1 phone manufacturer in the country in October, the first time it took that title since 2015.
The first iPhone supporting 5G was the iPhone 11 released in 2019. But hundreds of millions of users are still using older models. Apple will release a 5G model of its low-cost iPhone SE in early 2022, which could spur many upgrades from older models for budget-conscious consumers.
Meanwhile, carriers are starting to push their 5G networks on consumers, which could spur device upgrades. Many carriers will likely offer subsidies on 5G-ready devices in order to get consumers to use the 5G network. As 5G adoption increases, iPhone sales will grow. For every 1% increase in 5G upgrade rates, Apple stands to gain 11 million iPhone unit sales, according to KeyBanc analyst Brandon Nispel.
3. Supply chain challenges are behind Apple
Apple has had trouble sourcing enough camera modules and power-management chips for its high-end phones amid a global chip shortage. Those supply constraints cost it about $6 billion in revenue in the fourth quarter, CFO Luca Maestri estimates.
A recent look at iPhone 13 shipping lead times by Morgan Stanley analyst Katy Huberty found they're starting to come down to normal levels at the end of December. Although consumers had to wait about three weeks for an iPhone 13 Pro or iPhone 13 Pro Max to ship at the end of November, one ordered today will ship in a couple of days. Huberty says that's evidence that supply constraints are easing.
Some might see the shorter lead times as a sign of waning iPhone demand, but Huberty doesn't see it that way. "While we don't have enough data to definitively say that iPhone will exit the December quarter in supply/demand balance, we do believe that iPhone production is surprising to the upside," Huberty wrote in a note earlier this month.
With an expectation for increased demand from upgrades further spurred by carriers promoting their 5G networks, the only thing stopping Apple from growing iPhone unit sales may be its ability to produce new iPhones. Huberty says it's currently building about 82 million units per quarter, which would certainly push Apple's 2022 iPhone revenue even higher than that of 2021.