INowadays, a person can hardly wake up without picking up a smartphone. And in the United States, the device is very likely to be an iPhone. According to a Statista study conducted in March of this year, more than 113 million smartphone users own an iPhone.
Thanks to many of these users, Apple (NASDAQ: AAPL) just reported its biggest year of iPhone sales in history. The tech giant has generated nearly $ 192 billion in revenue from its line of smartphones in the past year. But 2022 could be even more important for Apple. Here are three reasons why.
1. A massive user base ready to upgrade
There are now more than a billion iPhones in use worldwide, Apple CEO Tim Cook explained during the company’s first-quarter earnings call in January. It is a large user base that will regularly replace their phones.
Image source: Getty Images.
While we’ve seen an extended upgrade cycle time over the past few years, it appears to have leveled off in 2021. Citi Analyst Jim Suva says replacement cycles are staying the same or may even be getting shorter. “Assuming replacement rates hover around three years for smartphones and the modeling of some of these upgrades to be refurbished devices, we think this suggests that installed base upgrades have yet to come. 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 be generalized. US operators are rapidly expanding their 5G networks and international markets are not far behind. China is on an absolute tear with its 5G build; 150 million Chinese already use 5G phones and Apple is winning many new phone purchases in the country. It was the number 1 phone maker in the country in October, the first time it had taken the title since 2015.
The first iPhone to support 5G was the iPhone 11 released in 2019. But hundreds of millions of users are still using older models. Apple will launch a low-cost 5G model of its iPhone SE in early 2022, which could prompt many older model upgrades for budget-conscious consumers.
Meanwhile, operators are starting to push their 5G networks on consumers, which could prompt device upgrades. Many carriers will likely offer subsidies on 5G-enabled devices in order to incentivize consumers to use the 5G network. As the adoption of 5G increases, iPhone sales will increase. For every 1% increase in 5G upgrade rates, Apple is expected to earn 11 million iPhone unit sales, according to KeyBanc analyst Brandon Nispel.
Apple iPhone 13 Pro. Image source: Apple.
3. The supply chain challenges are behind Apple
Apple has struggled to source enough camera modules and power management chips for its high-end phones amid a global chip shortage. These supply constraints cost it around $ 6 billion in fourth-quarter revenue, said CFO Luca Maestri.
A recent look at iPhone 13 shipping times by Morgan Stanley analyst Katy Huberty found they were starting to return to normal levels at the end of December. While consumers would have had to wait about three weeks for an iPhone 13 Pro or iPhone 13 Pro Max to ship in late November, the one ordered today will ship in a few days. Huberty says it’s proof that supply constraints are easing.
Some might see the shorter delivery times as a sign of declining iPhone demand, but Huberty doesn’t see it that way. “While we don’t have enough data to say for sure that the iPhone will come out of the December quarter in the supply / demand balance, we think iPhone production is surprisingly on the rise,” Huberty wrote. in a note earlier this month.
With an expectation of increased demand for upgrades further boosted by carriers promoting their 5G networks, the one thing stopping Apple from increasing iPhone unit sales may be its ability to produce new iPhones. Huberty says it currently builds around 82 million units per quarter, which would certainly push Apple’s 2022 iPhone revenue even higher than 2021.
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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Adam Levy owns Apple. The Motley Fool owns and recommends Apple. The Motley Fool recommends the following options: March 2023 long calls at $ 120 on Apple and March 2023 short calls at $ 130 on Apple. The Motley Fool has a disclosure policy.
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