This ‘strange’ and unexpected product line is helping Apple ‘dominate’ the smartphone market in the US

Over the past few years, the smartphone market has become more and more like the used car market.

While many of us choose to upgrade our phones every two to three years and consider older phones almost “disposable,” they last. This can affect everything from who wins the smartphone war to how the biggest businesses make money.

For example, Christopher Mims – Technology editor of the Wall Street Journal, shared that he bought a phone for his son and chose the previous generation iPhone SE for less than $ 200. Meanwhile, the youngest uses his old iPhone 8 to play games, which means this device still generates revenue for Apple through the purchase of the $5/month Arcade package.

And this is also how Americans are using old or refurbished appliances.

What’s driving this trend is that iPhones generally have a longer lifespan, and the new models are almost indistinguishable from their predecessors. In other words, phones are viewed by Americans as an expensive and durable thing, and even older models fit the need.

The “endurance” of the iPhone is largely attributed to the fact that Apple supports software upgrades for devices launched in early 2017. Therefore, these phones are considered to have a “new life”. , is passed on to a 2nd or even 3rd owner before being completely discarded.

In the US, carriers even lower prices for new phones when buyers exchange old phones. This trend is similar to the car market, there are many devices for those who like cheap goods.

The impact of this is said to be huge and helps Apple become a “winner”. Now, it seems that the majority of smartphones used in the US are still iPhones, as the market share of this product in the “country of the flag” is steadily increasing.

In the third quarter of 2022, Counterpoint Research said that Apple’s smartphone market share in the US exceeded 50% for the first time. And as of December, iPhone accounts for 52.5% of smartphones used in the US. The research firm says that number is likely to continue to rise, unless something changes that allows other smartphone makers to stem the trend.

Apple and the goal of “premium” product lines

Apple’s domination of the US smartphone market seems to have been going on for a long time and is driven by a number of factors. Not to mention the popularity of the iPhone with young people. That is shown in the green message lines – how to display messages on iPhone from non-Apple devices.

Another factor, according to Carolina Milanesi, technology analyst at Creative Strategies, is that Apple has built an entire ecosystem of interconnected and interdependent products, including AirPods, Macs, and the Apple Watch. They wanted to create a “closed garden” to bring consumers into.

In addition, the increasing price of new phones is another factor. As with various segments of the economy, from pet food, transportation to housing and sneakers, consumer electronics have undergone a process of “premium”. That is, a company will figure out how to charge consumers the most they are willing to pay.

Apple is the main driver of the trend of “premium” in the field of consumer electronics. For example, the top-end iPhone 14 Pro Max costs $1,599. By offering extremely expensive devices with features like larger screens and better cameras, Apple has raised the average price of all new iPhone launches by more than $900 since the holiday season. 2022-2023. This is an all-time high and is almost 10% more than a year ago.

Meanwhile, consumers love such phones. According to Apple analyst Ming-Chi Kuo, last summer, the iPhone 14 Pro Max was the most popular phone model among the company’s Pro series.

Old stuff is also expensive

Apple’s dominance in the premium smartphone segment is driving its record sales and profits. But what happens to those devices years later, when they’re not new, has the biggest impact on the total number of iPhones used.

“In particular, over the past three to four years, Apple has focused more on the second-hand market,” said Chetan Sharma, a telecoms industry analyst.

Currently, Apple has its own program to sell old phones. Several other companies are also active in the used phone market, such as Amazon, Best Buy, Back Market, Gazelle and carriers such as AT&T, Verizon and T-Mobile.

Market research firm IDC estimates 283 million used or refurbished smartphones will be sold in 2022, nearly one-fifth of all phones sold that year and 11.5% more than the previous year. with 2021. By 2026, IDC predicts that the number of used phones sold will reach 415 million units, representing an annual growth rate of nearly 14%.

And technology research firm CCS Insight said that Apple’s phones account for more than 80% of the second-hand phone market.

Earn revenue from hardware to services

Maybe, some people will think that expensive old iPhones will affect Apple’s total revenue because it affects sales of new phones. However, Apple has a way of making money on nearly all iPhones, while remaining unaffected by sales of used phones.

Last quarter, Apple’s services revenue hit a record $20.8 billion, in part due to 935 million paid subscriptions to its key services, like iCloud and Apple Music. The segment accounted for nearly 17% of the company’s revenue during that period, as service margins were much higher than hardware. Services posted a gross margin of 71.5% last quarter, while Apple’s gross margin was 43.3%.

iPhone will “rule” the whole world?

Of course, the phone market has also seen a downturn in the past. Nokia and Blackberry were good examples before the iPhone became popular. Apple’s steady profitability in both the premium and pre-owned market is no guarantee of future success. For example, they have not introduced a folding phone, a product that helps Samsung increase market share.

However, analyst Sharma said, globally, the trend like in the US is likely to repeat. From Europe to Asia, in rich countries, consumers under the age of 29 prefer iPhones, even in Samsung’s “hometown” of South Korea. He added that it may be slower for this trend to accelerate in Europe, due to a number of factors such as Android phones from Chinese manufacturers being more popular.

Overall, what’s happening in the US market is a trend that can happen to anyone who can afford an iPhone. And with the second-hand phone market growing rapidly, more and more countries are following the same path.

Refer to WSJ