I expect Apple's iPhone business to report accelerating growth in 2015 due to a combination of strong iOS user loyalty trends, carrier and geographic expansion, and share gains in developed markets. Following my 1Q15 iPhone sales estimate note published two weeks ago, I am establishing my quarterly iPhone unit sales estimates for the rest of 2015. Based on the initial success of iPhone 6 and 6 Plus, I expect Apple to report 25% unit growth for full-year 2015, up from 13% growth in 2014. Exhibit 1 highlights my quarterly iPhone estimates for 2015, while Exhibit 2 puts my 211 million iPhone unit estimate for 2015 in perspective with previous years.

Exhibit 1: Above Avalon iPhone Estimates

Exhibit 2: Annual iPhone Sales (fiscal year)

Topics to consider:

User Loyalty and Vibrant Upgrade Cycle. Apple has loyal iPhone users that upgrade on a regular basis, and the iPhone 6 launch looks to have successfully continued that trend. CIRP estimated that approximately 80% of U.S. consumers that bought the new iPhone 6 and 6 Plus in the first 30 days after launch were current iPhone users, up from 74% for the iPhone 5s launch in 2013. Kantar Worldpanel estimated that 86% of British iPhone buyers upgraded from an older iPhone for the three months ending October 2014. User loyalty is only one piece of the puzzle, as Apple needs a vibrant upgrade cycle to build and retain that loyalty. Apple has remained on a two year upgrade cycle built around a new form factor, with the off, or "S", years focused on refinements and component upgrades.

Additional Carriers. It may be easy to underestimate the impact from new carriers on iPhone's growth, but Apple has had a few recent high-profile additions. Apple launched the iPhone on NTT DOCOMO in 2013, and China Mobile in 2014. I estimate Apple is selling around 5-7 million iPhones a quarter through China Mobile, which would represent approximately 30% of my 2015 iPhone unit growth estimate. My declining quarterly iPhone unit growth estimates through 2015 partially reflects normalizing growth rates related to China Mobile.

In many other countries, including the U.S., Apple has been steadily working on bringing the iPhone to additional carriers, albeit much smaller than NTT DOCOMO and China Mobile. While individually each carrier may not contribute much to the bottom line, collectively they do represent a noticeable addition to iPhone's distribution channel.

Emerging Market Expansion/Further Penetration in Developed Markets. Apple expects the new iPhones to reach 119 countries by year-end, the fastest roll-out for iPhone. Apple is still in the early stages of tapping iPhone retail distribution in China, India, and Brazil. A report published last week discussed Apple's plans to expand its retail capabilities in India by opening 500 retail stores using a franchise model. In many developed countries, iPhone 6 and 6 Plus sales share is tracking ahead of iPhone 5s sales trends in 2013, suggesting Apple is capturing share from competing platforms.

Apple has a few levers to pull to maintain iPhone growth:

Upgrade Cycle. Apple has been successful in releasing iPhone features that do not over serve the market. It is in Apple's best interest to keep the iPhone upgrade cycle as short as possible by pushing the envelope with features that matter to iPhone users: screen, camera, sensors like Touch ID, and design. I would not be surprised if Apple continues to use the "S" cycle to come out with different iPhone colors, similar to the iPhone 5s.

Geographic Expansion. Apple will continue to focus on bringing the iPhone to new markets beyond just continued development in China and India. I also expect Apple to continue lowering iPhone's entry-level price, which will help drive sales in countries that do not rely on carrier-financed "subsidies" or installment plans.

Ecosystem Services. With Apple Pay, Apple is beginning to flex the iOS ecosystem by providing consumers additional value, while looking to find new lock-in mechanisms as media and content no longer increase ecosystem switching costs. Apple Pay's eventual expansion into new markets may also have a larger impact on sales in countries that were once considered outside Apple's core iPhone sales focus.

This report should be used to understand my views on Apple's 2015 iPhone sales, especially when I discuss the topic in my daily email, AAPL Orchard, or in other Above Avalon reports. Over the coming months, if new data becomes available, I will update my estimates accordingly. This report is not meant to be used as investment advice. Downside risks to my estimates include: iPhone supply issues and weaker-than-expected customer demand. Upside risks to my estimates include: stronger-than-expected customer demand, especially in China. This report was produced by Neil Cybart on December 8, 2014.

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