Last fall, Apple's(NASDAQ:AAPL) iPhone 6 and iPhone 6 Plus took the tech world by storm, boosting iPhone sales into the stratosphere. In the first weekend that the iPhone 6 and iPhone 6 Plus were on sale, Apple sold more than 10 million of them -- despite not selling any in mainland China, one of Apple's biggest markets.
Then, in the first full quarter of sales, running from late September to late December, Apple sold a stunning 74.5 million iPhones -- up 46% year over year. The average selling price also increased by 8% compared to the December quarter of 2013, despite some currency headwinds, indicating that many customers opted for more expensive models.
Thursday marked the six-month anniversary of the iPhone 6 and iPhone 6 Plus on-sale date. With the second full quarter of sales about to conclude next week, how are Apple's latest and greatest iPhones doing?
Rapid early adoption
Apple's new iPhones sold at an astounding pace during the first few months that they were available. By late December -- around the end of Apple's Q1 -- the iPhone 6 and iPhone 6 Plus together accounted for approximately 20% of all iPhone usage, according to Fiksu.
While estimates of the size of the iPhone user base vary significantly, 400 million is a reasonable ballpark estimate of the installed base as of December. This implies that there could have been as many as 80 million iPhone 6 and iPhone 6 Plus phones in use by the end of 2014.
In practice, early adopters of the iPhone 6 and iPhone 6 Plus probably use their phones more than people with older models. This suggests that the actual number of iPhone 6 and iPhone 6 Plus sales through late December could be lower, perhaps by 60 million-70 million. Either way, it means that the vast majority of the phones Apple sold last quarter were the new models, and that they quickly made their way into the hands of active users.
Whereas combined iPhone 6 and iPhone 6 Plus usage reached 20% of all iPhone usage in a little more than three months, the adoption pace has slowed more recently. As of this past week, the new iPhones represent a little less than 29% of iPhone usage.
On the one hand, this means that there are still plenty of users migrating to Apple's new iPhones. However, the usage share of the new iPhones (as measured by Fiksu) rose by nearly 1.3 percentage points per week on average last quarter, whereas the usage share is on pace to rise roughly 0.7-0.8 percentage points per week in the March quarter.
If the iPhone 6/iPhone 6 Plus usage share growth as measured by Fiksu was a perfect predictor of iPhone sales, then the reported slowdown in usage share growth would be bad news. Comparing the recent usage growth trend to last quarter's trend would imply sales of only 44 million iPhones this quarter.
However, the Fiksu data is probably underestimating Apple's March quarter iPhone sales for three reasons. First, Apple's product mix tends to shift toward older and cheaper products as each product cycle plays out. So sales of the iPhone 5s and iPhone 5c will probably represent a greater proportion of total iPhone sales this quarter than in the December quarter.
Second, high demand for the new iPhones prevented Apple from reaching supply demand balance last quarter. The buildup of normal retail channel inventory this quarter could potentially account for sales of 7 million additional iPhones.
Third, Fiksu discloses that its data for the Asia-Pacific may not be representative, based upon the apps that utilize its software development kit. In all likelihood, this means that Fiksu is under-sampling in that region, especially in emerging markets.
This means that Fiksu is probably undercounting Apple's strong sales in China. Kantar Worldpanel reported earlier this month that the iPhone snagged more than 25% of smartphone sales in urban China in January, up 4.5 percentage points year over year.
The popularity of the iPhone 6 and iPhone 6 Plus as luxury gifting items probably kept the sales momentum up during February due to the Chinese New Year. As a result, if Fiksu is not fully capturing usage growth in China, it may be missing the biggest iPhone sales driver of the past quarter.
We'll find out in a month just how well iPhone sales have held up this quarter. But based on the evidence available today, it looks like Apple is poised to post another quarter of strong iPhone sales growth. This will, in turn, lift the company's profit margin and EPS, keeping shareholders happy.
Adam Levine-Weinberg is long January 2016 $80 calls on Apple, short January 2016 $120 calls on Apple, and short January 2016 $140 calls on Apple. 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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