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The iPhone's Greatest Weapon: Retention

By Daniel Sparks - May 7, 2013 at 8:30PM

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Apple is projected to surpass Android in U.S. market share? One study goes against the grain.

Before we know it, Apple (AAPL -2.98%) could begin to regain market share in the smartphone market -- at least that's what a recent study from Yankee Group asserts.

The premise is simple: When Google (GOOGL -3.30%) Android ownership peaks, the iPhone's 91% retention rate versus Android's 76% rate will drive iOS market share gains. Retention matters, Yankee Group argues. Yet, oddly, Apple's unparalleled customer loyalty has gone largely unnoticed in most market-share forecasts. It's something that should be closely considered in any sales projections.

Even more surprising is the steepness of gains Yankee Group expects Apple to make over the next five years. Check it out.

Source: Yankee Group survey.

According to this forecast, iOS will surpass Android in U.S. market share by 2015. Even more shocking, iOS is predicted to have 42% market share compared with Android's 34% by 2017.

Retention will drive sales
Apple may be losing global market share among smartphone platforms, but that's not because sales are declining. iPhone shipments rose 6.6% in the first quarter of 2013 from the year-ago quarter.

The loss of market share comes as lower-cost phones using the Android operating system make outsized gains in emerging markets. This growth, of course, can't last forever. Eventually, these bargain-hunting markets will become saturated and retention will be the main driver of sales. Yankee Group suggests that the U.S. market is already hitting this point.

The U.S. still loves iPhones
These projections might seem unrealistic at first glance. After all, Apple's market share is getting crushed on a global scale. The iKing's share of worldwide handsets is down to 17.3% in the first quarter of 2013 from 23% in the year-ago a quarter. But here's the catch: The iPhone is still the most popular phone in the U.S. -- by far.

Don't believe me? Check out this tidbit from Yankee Group's study: Despite press excitement about Samsung, Apple continues to gain share against all Android devices. While Samsung may have garnered huge press attention from its Galaxy S4 announcement, consumer intent to buy Samsung phones is less than half that of iPhones in the United States. In fact, iPhone intent to buy is statistically tied with the intent to buy all Android phones combined.

Not convincing enough? Here's another fact from the study to chew on: "18 percent of Android owners intend to switch to Apple with their next smartphone."

Then, of course, there is the overwhelming evidence from the globally recognized consumer satisfaction study by J.D. Power and Associates:

Conservatism is an investor's best friend
Yes, Yankee Group's projections are encouraging for Apple investors. But take them with a grain of salt. The problem with the tech sector itself, as Warren Buffett has often explained, is the high degree of uncertainty in such a fast-changing environment.

With that said, Apple still trades conservatively, at about 11 times earnings. So uncertainty is already a major factor in Apple's stock price. On that note, if you're bullish on Apple, the study could be another reason to hold or even add to your Apple shares.

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