The following article was sent to Above Avalon members on May 19th, 2015.

Analyzing the iPhone User Base

One data point that I find increasingly important to keep track of is the current iPhone user base. This information isn't just useful when talking about the iPhone upgrade cycle, but it becomes critical when referring to adoption rates for services such as Apple Pay, and soon, Apple Music, and Apple's video streaming service.

Apple is actually somewhat good about disclosing financial information, or at least the right kind of data to reach educated estimates about most pieces of its business. You just need to have all the pieces of the puzzle in hand.

Last month, Tim Cook said on Apple's earnings call that 20% of the "active [iPhone] installed base" had upgraded to the iPhone 6 and 6 Plus. This data point compares to Cook's commentary back in January that approximately 13-14% of the iPhone installed base had upgraded (his exact quote was "mid-teens" or "barely in the teens").

Since we know Apple sold 61 million iPhones last quarter, we make an assumption as to what percent of the total were iPhone 6 and 6 Plus. I have long felt that 80% of total iPhone sales is a fair estimate for the newest iPhone model(s) on the market. Therefore, I estimate approximately 48 million iPhone 6 and 6 Plus units were sold January through March.

Running basic arithmetic with that 48 million number and Tim Cook's comments about the installed base, I get an iPhone installed base of approximately 475 million users. Is this an exact number? No. Is this a good estimate of roughly the number of people with an iPhone (all models)? Yes.

With this estimate in hand, we can start to break out the iPhone base by model. iPhone 6 has been outselling 6 Plus by approximately 2.5x, while both have been outselling the iPhone 5s and 5c by nearly 4-to-1. Taking into account these ratios, I suspect the current iPhone user base breakout looks something like:

iPhone 6: 85 million users
iPhone 6 Plus: 35 million users
Older (5s, 5c, 5, 4s): 355 million users
Total: 475 million users

That 355 million user base of iPhone 5s and older phones represents the key number to look at when determining the prime market for iPhone owners looking to upgrade to a new iPhone this coming fall. But 355 million is still a very big number. Using Fiksu data and adjusting for its U.S. and Eurocentric tendencies, my best estimate of the current iPhone user base is:

iPhone 6: 85 million users
iPhone 6 Plus: 35 million users
iPhone 5s: 125 million users
iPhone 5c: 50 million users
iPhone 5: 80 million users
iPhone 4s: 60 million users
iPhone 4 and earlier: 40 million users
Total: 475 million users

There is a lot that can reached by using that data, but I struggle seeing how someone can look at that breakout and not think similarly to Tim Cook when he says there is still a significant number of iPhone users in the market for an iPhone upgrade. Then take into account Apple's growing presence in China, and you can start to see how Apple can realistically sell more than 250 million iPhones in FY2016 (they are on track to sell 230 million in FY2015).

Bonus: One easy way to come up with a quick geographical mix of iPhone sales? If the number of iPhones sold in Greater China now outpaces the U.S., we know the U.S. has represented a consistent 35-40% of total Apple sales. That would suggest iPhone sales mix is something like: Greater China 37%, U.S. 35%, Other 28%.

In addition to the preceding post, Above Avalon members received the following articles this past week (100 percent related to Apple):

Apple and Uber Well-Positioned to Lead Automobile Industry
Apple and Auto Industry M&A
Icahn Invests in Lyft
Carl Icahn is Still on Tim Cook's Side
Spotify Wants Your Time
Apple Television Plans Put On Ice
Weak Apple Watch Demand?
Android Switchers
Verizon/AOL vs. Apple
Clinkle Turned Down Apple's Acquisition Offer?
Apple Buys a GPS Company
Tony Fadell is Concerned about Wearables Battery Life

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