Take a trip back to 2012. Remember when Apple (AAPL -0.60%) announced fiscal first-quarter 2012 results in January? On the strength of the launch of the iPhone 4s, robust iPhone sales helped the company blow away estimates. The stock soared in the coming weeks, gaining more than 40% by the end of March. Though the blowout quarter may have been nearly two years ago, it could still have implications on Apple's Q1 2014 results.
Apple's Q1 2012 results were nothing short of stunning. iPad sales were up 111% from the year-ago quarter. Revenue soared 73%. And most notably of all, iPhone sales were up a whopping 128% from the year-ago quarter at 37.04 million. There's no better way to illustrate the surprise factor than visually.
Apple's fiscal quarters used. Source: Data retrieved from respective quarterly filings.
This massive boost in iPhone sales could serve as a catalyst this quarter.
iPhone 5c.
The opportunity
Many of the subscribers in the U.S. who bought the iPhone 4s during that first quarter may likely have been in the market for the iPhone 5s or iPhone 5c when it was launched. Between AT&T (NYSE: T), Verizon, and Sprint, there were 13.7 million iPhone activations the quarter the iPhone 4s went on sale. The three carriers at the time allowed members to upgrade to a new subsidized phone after 20 months. Though the time required for an upgrade has been extended for Verizon and AT&T to 24 months since then, subscribers who purchased iPhones at that time weren't affected by the change. This means that many of these subscribers were eligible for an upgrade by June, July, and August of this year -- just as iPhone 5s and 5c rumors were ramping up. Many of these subscribers, therefore, may have opted to wait to upgrade their phones until Apple's latest launch of its flagship iPhone line-up in September.
Supporting this thesis, it's common knowledge that since Apple's iPhones are so expensive, the majority of customers choose to only by iPhones when their prices are subsidized. So there's very little chance many of these 13.7 million decided to opt to pay the unsubsidized price for an iPhone during the period they weren't eligible for an upgrade.
On the other hand, it's certainly possible many of these subscribers decided to purchase the iPhone 5 at the subsidized rate once they were eligible. But, by then, the iPhone 5 was more than nine months old. Undoubtedly many of these subscribers planned to wait for the launch of the iPhone 5s.
A final point to support the thesis of this potential catalyst to drive iPhone sales in Apple's first quarter of 2014: Apple customers are known for their loyalty, so most of these customers will likely purchase another iPhone, and not switch to a competing smartphone brand. Most surveys and studies suggest that the iPhone boasts approximately a 90%-plus retention rate.
The impact
Though this is the first iPhone launch that Apple can draw from such a substantial pool of subscribers who are eligible for upgrades, there are a few factors that could dampen the impact.
First, even if Apple does see a significant portion of these 13.7 million subscribers upgrade to the iPhone 5s or iPhone 5c, the company is up against some tough comparisons. In Apple's first quarter of 2013 the company sold 47.8 million iPhones -- more than 10 million more the quarter one year earlier.
Second, it's important to keep in mind that some of Apple's iPhone sales took place at the end of Apple's fourth quarter (although limited by supply constraints), thanks to a September iPhone launch. This wasn't the case with the iPhone 4s, which was launched in October.
But despite tough comparisons and an imperfect comparison because of launch timing, the number is big enough to likely have a meaningful impact on U.S. iPhone sales. Though the catalyst isn't big enough to gamble on quarterly results, it is certainly possible that it could help Apple achieve some upside surprise during the quarter.
