Apple (NASDAQ:AAPL) is likely unveil the next iPhone on Sept. 9, according to a variety of major media outlets. The handset, which could be defined by its larger screen, is expected to set sales records when it debuts later this year: According to The Wall Street Journal, Apple is prepared to move as many as 70 million-80 million new iPhones by the end of December.
If so, it will be a huge year for Apple's handset, especially given the recent difficulty rival Samsung (NASDAQOTH:SSNLF) has experienced. Nevertheless, such figures are made possible by a key statistic.
Apple's customer loyalty is unmatched
According to Morgan Stanley Research, Apple is unmatched when it comes to customer loyalty, retaining 90% of iPhone owners as recently as March. Samsung's customers are also fairly loyal, but to a much lesser extent -- Samsung's customer retention is around 77%.
Morgan Stanley's research is consistent with other findings. In February, WDS released the results of a survey it had conducted on smartphone buying habits. Although its results were not as bullish as Morgan Stanley's, WDS found that 76% of Apple's customers purchased a new iPhone when it came time to upgrade -- only 58% of Samsung's customers bought another Galaxy.
There are many factors that may explain this loyalty -- the quality of Apple's products, for example, or the stickiness of its ecosystem. Most notably, unlike Samsung, Apple has exclusive rights to its mobile operating system -- customers that want a phone powered by iOS have no choice but to purchase another iPhone; Galaxy users that want to stick with Android are free to choose a variety of competing handsets from rival manufacturers.
A larger iPhone could spark a wave of upgrades
Given its high degree of customer loyalty, it's logical to expect Apple's next iPhone to capture the bulk of existing iPhone users, particularly if they're attracted to its larger screen.
In another piece of research, Morgan Stanley noted in May that -- at least in the U.S. -- older-generation iPhones make up much of Apple's current install base. In fact, the iPhone 4 and iPhone 4s account for nearly half of the iPhones currently in use.
Many of these iPhone 4 and iPhone 4s owners could be prime customers for Apple's next handset, especially if they purchased their iPhones around their respective debuts (in 2010 or 2011). However, many of these handsets were undoubtedly purchased more recently, as even now Apple continues to offer the iPhone 4s.
A better measure may be to consider Apple's iPhone sales in the fourth quarter of 2012, as those consumers would be coming up on the end of their two-year contract agreements. During that quarter (which was Apple's first quarter on a fiscal year basis), Apple sold nearly 48 million iPhones.
Should 90% of those customers purchase another iPhone later this year, that would result in sales of over 43 million. On top of that, sales in that quarter did not include the more than 5 million iPhones Apple sold during the iPhone 5's first weekend on sale in September 2012.
At the same time, rumors of a larger iPhone 6 have been swirling for months, and many of Apple's customers (who may have otherwise already upgraded) could have delayed their purchase in the hope of snagging a larger iPhone. With a larger screen variant, Apple could also be poised to poach some of Samsung's best customers.
The last factor, and perhaps the most significant one, has been the growth of no-contract plans. According to Apple's CEO Tim Cook, more than 75% of the iPhones Apple sold last quarter were to customers on an unsubsidized plan. Although these customers receive a discount for holding on to their existing phones for a longer period of time, they can also upgrade more quickly -- at least every year, if not more often.
In the past, it would have been appropriate to assume that Apple's prior-year customers would not upgrade to the latest model -- today, that's far from true. In the fourth quarter of 2013, Apple sold 51 million iPhones; the majority of those buyers will probably not upgrade, but millions could.
The iPhone 6 in context
Although smartphones are approaching saturation, Apple's iPhone 6 is still likely to be the best-selling iPhone yet. Given the intense loyalty of Apple's customers, it's fair to assume that many of them will upgrade.
If Apple sells 65 million iPhones in the fourth quarter (factoring out iPhones that will be sold at the end of September), it would represent an annual increase of more than 27%. That may be too aggressive, but it certainly seems possible.
Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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