The demand for new iPhones remains as strong as ever. A holding in both newsletter portfolios, Apple (AAPL) announced September 14 that it is on pace to break last year’s first weekend iPhone sales record of 10 million units sold following the unveiling of its most recent product updates, a review of which can be found here.
There are a few important distinctions between this round of iPhone upgrades and previous cycles, however. Apple pushed the release date back to September 25 this year, compared to the release date of September 19 for last year’s unveiling of the iPhone 6 and 6 Plus. This will give the company more time to improve the logistics of its actual release date; it hopes to streamline the process to eliminate as much of the already prevalent back orders.
Further, the release of the sales unit update on September 14 came after the new iPhones were available for pre-order by one less day than the previous year, making comparisons a bit more difficult. Offsetting that dynamic, however, the new iPhones were available for pre-order and immediate release in two additional countries, China and New Zealand, compared to the previous iteration. The incremental sales in China will have material implications, and a record performance should have been expected since this is the first time the country has been included in the initial release of new iPhones.
According to a blog that tracks the wait time for different iPhone models, wait-time for pre-orders of the iPhone 6s Plus is 3-4 weeks. In China, the wait for all iPhone 6s models is 2-3 weeks, and other notable countries–such as the UK, Canada, and Japan–have a similar wait for select 6s models. Pre-order demand has been higher than most anticipated, including Apple.
Apple has faced ongoing investor concern that a potential weakening of the world’s second-largest economy, China, would limit its growth trajectory, but the firm has had the utmost confidence in its dealings–as evidenced by a recent letter from CEO Tim Cook. The recent release of pre-order information supports his stance that the company has continued to experience strong growth in China despite macroeconomic concerns swirling the country. Share gains in China have been a key driver as recent data has revealed.
The lack of consistency and clarity surrounding the sales unit release September 14 keeps us from drawing any material conclusions about the true levels of demand for the newest iPhones, however. It is certainly reasonable to believe that Apple will sell more iPhones in its upcoming launch weekend than ever before, but the addition of China and other factors make informative comparisons to previous upgrade cycles difficult, to say the least. The launch of the iPhone upgrade plan from Apple, for example, is yet another dynamic that has further muddied the pre-order picture.
The upgrade plan may turn out to be a more significant development than the new iPhones themselves. For one, the new plan essentially allows Apple to turn over 60% of its existing revenue base into a recurring revenue stream, a fantastic step forward in its business model. In the plan, consumers enter into a 24-month agreement in which they pay a flat monthly rate for an iPhone. At the end of the 12 months they are then eligible for an upgrade to the newest iPhone model, but the phone is not fully paid for until the end of the 24-month agreement. The development of this plan could be a source of significant, sustainable upside, and if it receives positive feedback and generates consumer traction, it will be an ongoing positive for the firm in the long run, even if the structure of the plan itself is easily replicated by rivals.
All told, we aren’t getting too excited over Apple’s overarchingly positive release concerning its iPhone pre-orders given the large number of moving parts relative to last year’s numbers, but we remain very positive on the company’s outlook and financial position as a whole. A deeper dive into our thoughts on the company can be found here, where we outlined our views and quantified Apple’s tremendous investment case. The company remains one of our favorite ideas within our coverage universe.