Apple (AAPL 2.21%) has held its ground in the smartphone market so far this year, as its iPhones have witnessed healthy demand at a time when major Android manufacturers have found it difficult to increase sales.
The tech giant looks set to enjoy solid iPhone sales growth in the second half of the year as well because it will update its smartphone lineup soon. Apple is expected to unveil the rumored iPhone 14 models in September, with the new lineup expected to go on sale later next month. Let's look at the two reasons why Apple's upcoming iPhones could set the sales registers ringing.
NASDAQ: AAPL
Key Data Points
1. The iPhone upgrade cycle is still solid
IDC reports that global smartphone shipments were down 8.9% in the first quarter of 2022, followed by an 8.7% drop in the second quarter. But Apple saw growth in iPhone shipments in both quarters. In Q1, iPhone shipments were up 2.2% year over year to 56.5 million units. Second-quarter iPhone shipments increased by a small margin of 0.5% over the prior-year period.
One reason why Apple has been able to defy the smartphone slowdown is because of a large installed base of users that are in an upgrade window. Last month, Wedbush analyst Daniel Ives estimated that there are 240 million iPhone users in Apple's installed base that haven't upgraded their devices in three and a half years. These users are likely using the iPhone XR (launched in September 2018) or older devices from Apple.
As a result, a large chunk of Apple's installed base of 1 billion iPhones is yet to be 5G-enabled, as the iPhone 12 lineup launched in 2020 was the first from the company's stable to support the latest wireless standard. With 5G networks now available to a quarter of the global population, according to Ericsson, as compared to 2019, when the wireless standard was still in infancy, it won't be surprising to see a sizable chunk of Apple users upgrade to its upcoming iPhones.
Not surprisingly, Apple seems upbeat about the demand for its next-generation smartphones. The company has reportedly placed orders to make 90 million units of the new iPhone models in 2022. For comparison, the company produced an estimated 80 million units of the iPhone 13 models last year, owing to the supply crunch.
This explains why there are expectations that this year's iPhones could sell better than last year's offerings.
2. The Android-to-iOS switch could be another tailwind for Apple
The smartphone sales trends in 2022 so far indicate that Apple may have been attracting more users from the Android ecosystem. CFO Luca Maestri indicated the same on Apple's July earnings conference call: "We also attracted a record number of switchers for the June quarter, with strong double-digit year-over-year growth."
Switchers refer to those iPhone users who moved to the iOS ecosystem from other platforms. The smartphone shipment data backs up Apple's claims, as Android heavyweights such as Xiaomi, Oppo, and Vivo have witnessed a steep sales decline this year. Even smartphone market leader Samsung had seen its shipments drop 1.2% year over year in Q1 when Apple's numbers headed higher.
There is one big reason why Apple has been able to attract users from the Android ecosystem. The advent of 5G smartphones has led to an increase in the average selling price of smartphones. As a result, customers in emerging markets such as India, Indonesia, and Vietnam are buying iPhones even though they may be more expensive than their Android rivals in those markets.
The good part is that 5G smartphone sales are expected to head higher in the long run. According to Statista, 5G smartphones reportedly accounted for 43% of global smartphone shipments last year. By 2023, that proportion is expected to jump to 69%, indicating that there will still be a lot of room for growth in this segment. As such, the growth of the 5G smartphone market could give iPhone sales a boost in the long run by helping it win more users from the Android fold.
All this indicates why Apple seems upbeat about the performance of its upcoming iPhone models. The company was expected to produce 220 million iPhones in 2022, and the shipment figures for the first half of the year suggest that it may have produced close to 101 million units. So, Apple could enjoy a terrific second half thanks to the potential success of its next iPhone lineup.
That's because the iPhone has produced 53% of Apple's revenue in the first nine months of the current fiscal year, so it moves the needle in a big way for this tech stock. Shares of Apple have gained 10% in the past month, and they could head higher thanks to the potential success of the next iPhone.
