Smartphone upgrade cycles have been steadily lengthening for years, which has important implications for smartphone vendors and wireless carriers alike. Slowing unit sales have led companies like Apple (NASDAQ: AAPL) to pivot toward subscription services in an effort to better monetize all of the devices that are already out there. Market researcher Strategy Analytics is out with some new estimates on smartphone upgrade cycles.
Here's what investors need to know.
Image source: Apple.
The average upgrade cycle in the U.S. has now extended to 33 months -- nearly three years. That's despite strong interest in 5G technology, which is now available on a small number of devices. It's still very much early days for 5G, with significant price premiums associated with 5G handsets and limited carrier coverage. The insights were gleaned from a survey (n = 2,500) conducted in the U.S. sampling smartphone owners ages 18 to 64.
Strategy Analytics findings show that the average iPhone has been active for 18 months, while the average Samsung smartphone has been active for 16.5 months. Demographics also play an expectedly critical role: Baby boomers ages 55 to 64 years old tend to keep their devices for over three years, while younger users tend to upgrade more often.
Younger users are also becoming more concerned with screen addiction, so digital tools (like iOS Screen Time and Android Digital Wellbeing) to manage usage are starting to appeal to that demographic. Samsung has the highest share among Generation X (40 to 54 years old), but Apple dominates Generation Z (18 to 24 years old) in purchase intent by a 40-point margin.
Strategy Analytics Senior Vice President David Kerr commented:
Operators and device brands face significant inertia given consumer perception of diminishing innovation or marginal value add in successive generations of flagship devices. At the same time vendor pursuit of profitability has seen smartphone prices rising toward and above $1,000. Prices for 5G phones will be a key barrier despite 1 in 4 recognizing it as being important for their next device.
Apple and Samsung command the strongest brand loyalty of over 70%, which is considerably higher than other vendors like LG and Motorola that have brand loyalty under 50%.
Apple has been leveraging price increases as a way to offset slower upgrades, even before including 5G support, which is expected in the 2020 iPhones. The Mac maker doesn't even disclose iPhone unit volumes anymore, presumably in order to divert investor attention to the company's growing services business. Once Apple Arcade and Apple TV+ launch later this year, the Cupertino tech giant is hoping some consumers will pay $45 per month to subscribe to its five core services, generating $540 in annual revenue for those users, which can partially compensate for longer replacement cycles.
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Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: short January 2020 $155 calls on Apple and long January 2020 $150 calls on Apple. The Motley Fool has a disclosure policy.
This article was originally published on Fool.com