“It’s becoming more clear that demand for the new iPhone Air is soft. Recent third party estimates suggest the new form factor accounts for around 5% of iPhone sales, longtime Apple analysts Gene Munster writes on GeneMunster.com. “Before it went on sale, I and the Street had estimated it would account for 15% of sales. Despite that headwind, the iPhone is growing at its fastest rate in four years, largely thanks to a massive upgrade pool showing up, albeit nine months late.”
Despite Apple positioning the Air as a Pro level device, it has noticeable gaps in camera features and battery life. Yes, its aesthetics are impressive, but the functionality still lags the Pro line.
What matters most is that both the Air and Pro introduced eye catching new hardware designs. New hardware designs have typically boosted revenue growth. When the iPhone 6 and 6 Plus launched in 2014 with larger 4.7 inch and 5.5 inch displays compared to the iPhone 5’s 4 inch display, it powered a super cycle. iPhone revenue in FY14, the iPhone 5 cycle, grew 12% y/y. The 6 and 6 Plus drove revenue up 52% in FY15.
The conversation about the strength of the iPhone next year should be balanced with what that means for the out year, 2027. The bad news is the strength of the iPhone 17 cycle raises the bar for the 18 cycle in FY27. If I’m right that upgrades are playing a big role in FY26 iPhone demand, a year from now that upgrade pool will begin to lose momentum. This translates to the iPhone in FY26 should be up 10% compared to an average growth of 1.5% in FY22 through FY24. The bottom line: the upgrade pool creates a difficult comp for FY27.
Next Fall, it is rumored that Apple will come out with another new form factor, a foldable phone. I put the odds of that at less than 25%. Even if a foldable phone did come out next fall, which would be a material catalyst for form factor buyers, I don’t think supply would ramp fast enough to move the needle. More importantly, the Air’s performance to date was a reminder to me that while the form factor punch is a wild card, the upgrade muscle is strengthening.
MacDailyNews Take: As Gene notes, “In FY21, iPhone sales grew 39% compared to down 3% in FY20 and down 14% in FY19.” So, the strength we’re seeing now – and expect to see throughout FY26 – is powered by a large pent-up pool of upgraders of four- to five-year-old iPhone 12 models.
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