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Bernstein’s Sacconaghi: iPhone customers are upgrading every 4 years

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Apple customers are holding onto their old iPhones longer than ever as fewer and fewer of them find reasons to upgrade to new models, a new report indicates.

And that slowdown in Apple’s main business could weigh heavily on its up-and-coming services business.

Only about 16% of the total iPhones in service are likely to be swapped out for new ones this year, Bernstein analyst Toni Sacconaghi said in a research note Friday. Meanwhile, customers who bought their iPhones new are now starting to wait around four years before replacing them with new ones, and replacement cycles could get even longer in the near future, he said.

“Current upgrade rates have slowed dramatically and may be lower than investors realize,” Sacconaghi said in the report. He continued: “Replacement cycles are elongating … a lot.”

Apple reported disappointing holiday quarter results last week, thanks largely to poor sales of the iPhone, which provides well more than half of its revenue and earnings. The company has struggled to find demand for its latest models, which it launched last fall, and has reportedly cut production of them repeatedly.

Read this:iPhone sales crater 15% in Apple’s worst holiday results in a decade, and the forecast looks just as grim

Don’t expect a quick rebound in iPhone sales

Like some other analysts, Sacconaghi doesn’t expect Apple’s phone sales to rebound anytime soon. He expects the number of iPhones it will sell in its current fiscal year to fall 19% from last year and to decline another 1% a year in fiscal 2020 and 2021.

“It is not obvious that the current year’s iPhone offerings will be compelling enough to drive material upgrades,” he said. Fiscal 2020, he continued “could still be a tough year, given the lack of an obvious must-have feature in the upcoming cycle’s iPhones.”

The steep drop Sacconaghi expects this year in iPhone sales translates into a sharp reduction in upgrades and replacement rates. As recently as Apple’s 2015 fiscal year, the number of iPhones it sold — 231 million — represented about a third of the total number in service worldwide. Even last year, when the number of phones it sold basically didn’t grow from the year before, the number that Apple did sell — about 218 million — represented about 22% of its total user base.

The expected further decline this year would drop Apple’s upgrade rate to an unprecedentedly low level, he noted.

The replacement cycle is growing longer

Many analysts focus on replacement cycles — the length of time before users swap out their phones — rather than upgrade rates. But the two are linked, and the fall in upgrade rates implies that customers are waiting longer and longer to get new phones, Sacconaghi said.

“What does a 16% overall upgrade rate imply for [replacement] cycles?” he said. “The short answer is … it’s bad.”

In the past, iPhone owners who bought their phones new replaced them at least every three years, Sacconaghi said. Given his expectations for iPhone sales and upgrade rates, current phone owners in the same position will likely replace them every four years.

That’s “a drastic step-up from prior cycles,” he said.

Even if the upgrade rate stays constant in future years, the replacement rate will likely grow even longer — possibly to 4-1/2 years or more — given that Apple’s total user base is increasing.

Apple ceased reporting the number of iPhones it sells each quarter as of the end of its last fiscal year. And it’s never released the number of users who have second-hand devices. So Sacconaghi’s figures are based on informed estimates from the numbers Apple has released, such as its past unit sales and its overall user base, and executives’ past comments that have characterized its results.

“Modeling iPhone’s installed base is as much art as science,” he said.

Weak iPhone sales will hamper Apple’s services growth

Sacconaghi estimates that about 32% of the total number of iPhones in use are second-hand phones. Owners of such devices are much less likely than owners of new ones to replace them with new models, he said. Perhaps more concerning for Apple and investors, owners of second-hand phones are less likely to spend on Apple’s services, he said.

As its phone sales have slowed, Apple has been touting the growth of its services business, which includes things such as Apple Music subscriptions, commissions on app store sales, and payments from Google for promoting its search engine.

The problem for Apple is that services revenue is tied in no small part to sales of new phones, Sacconaghi said. He forecasts that the company’s services business will grow by just 15% this fiscal year after growing by more than 20% in each of the last three years.

“This deceleration [in iPhone sales] should present a headwind to services growth going forward,” he said.

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More groups join in support of women in STEM program at Carleton

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OTTAWA — Major companies and government partners are lending their support to Carleton University’s newly established Women in Engineering and Information Technology Program.

The list of supporters includes Mississauga-based construction company EllisDon.

The latest to announce their support for the program also include BlackBerry QNX, CIRA (Canadian Internet Registration Authority), Ericsson, Nokia, Solace, Trend Micro, the Canadian Nuclear Safety Commission, CGI, Gastops, Leonardo DRS, Lockheed Martin Canada, Amdocs and Ross.

The program is officially set to launch this September.

It is being led by Carleton’s Faculty of Engineering and Design with the goal of establishing meaningful partnerships in support of women in STEM.  

The program will host events for women students to build relationships with industry and government partners, create mentorship opportunities, as well as establish a special fund to support allies at Carleton in meeting equity, diversity and inclusion goals.

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VR tech to revolutionize commercial driver training

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Serious Labs seems to have found a way from tragedy to triumph? The Edmonton-based firm designs and manufactures virtual reality simulators to standardize training programs for operators of heavy equipment such as aerial lifts, cranes, forklifts, and commercial trucks. These simulators enable operators to acquire and practice operational skills for the job safety and efficiency in a risk-free virtual environment so they can work more safely and efficiently.

The 2018 Humboldt bus catastrophe sent shock waves across the industry. The tragedy highlighted the need for standardized commercial driver training and testing. It also contributed to the acceleration of the federal government implementing a Mandatory Entry-Level Training (MELT) program for Class 1 & 2 drivers currently being adopted across Canada. MELT is a much more rigorous standard that promotes safety and in-depth practice for new drivers.

Enter Serious Labs. By proposing to harness the power of virtual reality (VR), Serious Labs has earned considerable funding to develop a VR commercial truck driving simulator.

The Government of Alberta has awarded $1 million, and Emissions Reduction Alberta (ERA) is contributing an additional $2 million for the simulator development. Commercial deployment is estimated to begin in 2024, with the simulator to be made available across Canada and the United States, and with the Alberta Motor Transport Association (AMTA) helping to provide simulator tests to certify that driver trainees have attained the appropriate standard. West Tech Report recently took the opportunity to chat with Serious Labs CEO, Jim Colvin, about the environmental and labour benefits of VR Driver Training, as well as the unique way that Colvin went from angel investor to CEO of the company.

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Next-Gen Tech Company Pops on New Cover Detection Test

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While the world comes out of the initial stages of the pandemic, COVID-19 will be continue to be a threat for some time to come. Companies, such as Zen Graphene, are working on ways to detect the virus and its variants and are on the forefronts of technology.

Nanotechnology firm ZEN Graphene Solutions Ltd. (TSX-Venture:ZEN) (OTCPK:ZENYF), is working to develop technology to help detect the COVID-19 virus and its variants. The firm signed an exclusive agreement with McMaster University to be the global commercializing partner for a newly developed aptamer-based, SARS-CoV-2 rapid detection technology.

This patent-pending technology uses clinical samples from patients and was funded by the Canadian Institutes of Health Research. The test is considered extremely accurate, scalable, saliva-based, affordable, and provides results in under 10 minutes.

Shares were trading up over 5% to $3.07 in early afternoon trade.

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