BayStreet Insights
Insights
Early iPhone 15 Thoughts
August 9, 2023 - We believe Q4 iPhone 15 success will come down to carrier promotions, and product innovations over the iPhone 12 series. Despite signs of promotional fatigue in 1H23, we believe the promotional environment will remain strong as AT&T is unlikely to increase exposure to T-Mobile's successful 2Q23 efforts to poach AT&T subscribers. Furthermore, T-Mobile's new Go5G plans will use upgrade promotions to drive subscribers into higher ARPU plans. Thus, Verizon will likely have to match AT&T and T-Mobile’s aggressive offers. Lastly, device innovation relative to the iPhone 12 appears robust, with iPhone 12 upgraders getting several user experience innovations, including a 48 MP vs. 12 MP camera with zoom and macro modes, always-on display, dynamic island, and emergency satellite SOS. With an easier y/y comparison due to the delayed iPhone 14 Plus last year and reducing economic uncertainty, iPhone 15 growth over the iPhone 14s appears possible.
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A Race to the Bottom
August 9, 2023 - An OEM's success in postpaid now hinges on its ability to deliver a comprehensive device ecosystem. Given the significant development costs required to bring a successful ecosystem to postpaid, the opportunity for budget-oriented OEMs like TCL, NOK and OnePlus to grow seems to be ending. In a declining prepaid market with MOT and SAM taking ~70% of market share, budget-oriented OEMs find themselves vying for a shrinking segment. If this low-end weakness persists and carriers continue to rationalize the number of OEMs, proven brands like SAM and MOT and the WING ODM are well-positioned to benefit. By opting out of brand development and leveraging scale from MOT and SAM ODM business, WING has secured itself a stable foundation on which to weather the storm.
Ultra-Premium Mix at Record Highs
July 10, 2023 - Beginning with the iPhone 12, we have tracked a prevailing preference towards the $1,000+ iPhone Pro variants. The iPhone 14 cycle is setting new records, including late-cycle strength with the Pro variants ending Q2 with a mix north of 60%. As smartphone innovation has slowed, OEMs have put the most substantial year-over-year enhancements in their Ultra-Premium devices. Increased smartphone utility and record carrier promotions have also supported these trends. Carrier's consistent trade-in offers have also reduced consumer apprehension with a $1000+ price tag. With one of the iPhone 15's most innovative features expected to come solely on the 15 Pro Max, we would not be surprised to see more record-breaking Pro variant mix in 2024.
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More Foldables Coming
July 10, 2023 - The U.S. foldable smartphone market is adding new entrants as Motorola and Google join Samsung in expanding the category. Google's entrance to the fold form factor affirms Android OS' commitment to improving the foldable software ecosystem. Motorola's latest Razr+ flip, with rumors of an upcoming Razr Lite at a more affordable sub $700 price tag, will expand access to the flip form factor to new price tiers. Samsung's pending fifth-generation Z Series should benefit from increased category awareness and potential improvements in dual-screen app development. While new brands, expanded awareness, and lower price points should help overall, we struggle to believe the category will grow meaningfully due to the lack of incremental utility over Apple's ecosystem, regardless of price, to get a user to leave.
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Shift to iPhone Plus from Mini Paying Dividends
June 12, 2023 - Beginning with the iPhone 12 cycle, Apple's Pro variant mix improvements have received well-deserved attention. However, we believe the gains the 14 Plus has made over the iPhone Mini deserve recognition. Within the iPhone 12 and 13 Non-Pro mix, the 12 Mini and 13 Mini never captured more than 10% of mix. However, the iPhone 14 Plus has already gained over 35% of the Non-Pro U.S. mix as of early June. We estimate the shift to the 14 Plus from 13 Mini has improved Non-Pro ASPs by ~5% y/y. Interestingly, we expect the iPhone 14 Plus strength to continue for years, considering it will be Apple's first large-screen "n minus" device with exceptional battery life, something price-conscious consumers place a great deal of value on.
T-Mobile's Go5G Plans
May 10, 2023 - Three years after the Sprint merger, T-Mobile can increase service plan pricing for new subscribers. Uniquely, T-Mobile is leveraging the appeal of two-year device upgrades to entice subscribers toward higher-priced Go5G service plans. Our research from early May shows a strong uptake for the Go5G Plus plan, with an estimated attach rate of over 70%. We are interested in understanding if most consumers will upgrade after two years on the new plans and believe focusing on two-year upgrades is a positive for the US smartphone market. Finally, the trade-in requirement for device upgrades is likely to support iOS share gains simply because of the iPhone's higher residual values and T-Mobile's increasing focus on margin improvement.
T-Mo & VZ Reduced Apple Promotions to Start Q2
April 12, 2023 - T-Mobile has focused on decreasing device upgrades and promotions since completing the Sprint migration in 1Q22. As of this week, T-Mobile has removed all iPhone upgrade offers, including the long-standing ~$400 upgrade-eligible discount with a trade-in. However, T-Mobile's Samsung flagships still have the $400 discount for trade-ins. Verizon has also begun Q2 with weaker iPhone bundles. It has reduced offers of $300 off the Apple Watch SE2 and $460 off the iPad 9 with new smartphone purchases while maintaining Samsung watch and tablet bundles. Although we expect T-Mobile to resume upgrade-eligible offers eventually, it is worth noting that it has no iPhone upgrade offers for the first time in almost two years.
S23s Run Out of Steam Early
April 12, 2023 - Following weak Q4 smartphone sales, S23 preorders were down ~25% y/y across carriers. Surprisingly, initial S23 sales improved upon preorder weakness, particularly at Verizon, where the tablet/watch bundle helped boost sales to nearly flat y/y. T-Mobile also saw a slight improvement from weak preorder trends. Unfortunately, early momentum has been short-lived, with S23 Ultra sales slowing significantly beginning ~45 days after launch. The previous two Galaxy S cycles did not show significant weakness until ~90 days after launch. We believe the S23 series suffers from mild y/y innovation following two years of growth and aggressive promotions. Add continued economic uncertainty and T-Mobile's efforts to reduce upgrades, and it appears the S23s are slated for a challenging year.
Glass Half-Full S23 Trends
March 8, 2023 - Initially, we forecasted slight y/y growth for the S23 series due to various factors, such as the lack of an S22 FE model launch in January, improved supply compared to the heavily constrained S22 series, the 30-month anniversary of the last Note launch, and better carrier promotions. However, the weakening US smartphone market is overwhelming these growth tailwinds. Globally S23 sales are up y/y in all regions except the US, which is down ~20%. With the US postpaid market down ~10%, the S23s are only down an incremental 10% to the market despite mild iterative improvements and a satiated Note base from last year's strong S22 Ultra cycle. Interestingly, early March S23 sales have surpassed weaker preorder trends, making us slightly more optimistic in the short term.
ODM Rationalization?
March 8, 2023 - During the 2021 chipset shortage, prepaid carriers turned to ODM smartphones as established OEMs like Samsung and Motorola faced supply constraints. ODMs supplied the prepaid carriers with ultra-low price points and inexpensive 5G devices. However, as we enter 2023, the prepaid market has slowed, and inventory constraints have shifted to excess. Consequently, prepaid carriers are rationalizing the number of manufacturers they support and leveraging promotional funding from established brands. A slowing prepaid market and aggressive OEM funding could make the ODM model less appealing. The question remains: will prepaid carriers continue to adopt the ODM model without a chipset shortage? The answer may come in 2023.
T-Mobile’s Shrinking Upgrade Rate
February 9, 2023 - T-Mobile reported a record low device upgrade rate of 3.9% for Q4, even lower than the 4.8% seen in Q1. One factor driving the reduction was completing the Sprint migration in Q1 2022. As the sole US value carrier, T-Mobile is less likely to lose customers to higher-priced AT&T and Verizon plans, allowing them to reduce their focus on device upgrades and better maintain a value cost structure. T-Mobile is also less aligned with Apple's increasingly Pro variant-focused portfolio, coupled with the Q4 14 Pro shortages, likely driving less Q4 upgrades. Another factor is T-Mobile's continued efforts in BYOD offers and "beyond the smartphone" device sales, both of which drive subscribers without large smartphone subsidies. Although these factors help explain some of T-Mobile's historically low upgrade rate, we are not sure we understand the complete picture. Regardless, it is clear to us now that we are entering a post-5G era of slower smartphone upgrades.
Return to Elongation
February 9, 2023 - Disproportional iPhone 14 Pro versus 14 Non-Pro innovations combined with the smartphone's ever-increasing importance in consumers' lives have driven the mix of 14 Pro sales to all-time highs. However, this shift signals that upgrade cycles will likely elongate as consumers justify paying higher Pro prices with the ability to hold their devices longer, especially as the promotional environment returns to more normal levels. With carriers evolving their promotional strategies from defensive smartphone upgrades to other churn reducing efforts, we believe 4Q22 represents the end of the shortening upgrade cycle we tracked in 2021 and 2022. We think most consumers will or have shifted from upgrading every 2-3 years to every 3-4 years and are curious to understand if the innovation in the iPhone 15s can entice iPhone 12 customers to upgrade at three years. We are not overly optimistic.
More Bundles Coming
January 12, 2023 - As innovations in smartphone hardware have slowed, advancements have shifted to unique experiences by integrating smartphones with smartwatches, headphones, and tablets. In postpaid, T-Mobile has typically had the most aggressive offers on connected tablets and smartwatches, consistently offering a free low-end Android tablet and the highest discounts on smartwatches. However, in 4Q22, Verizon succeeded with aggressive offers of a free tablet, smartwatch, or headphones with smartphone purchase. While AT&T has mostly remained on the sidelines, they will likely soon follow suit. While integrated devices do not offer the same ARPU as smartphones, they do reduce churn and increase customer satisfaction, with some estimates indicating as much as a ~30% reduction in subscriber churn with one integrated, carrier-connected device. With consumer and carrier alignment on the value device ecosystems, we believe carriers' promotions are likely to continue to shift toward bundles.
S23 To Benefit From Note Migration
January 12, 2023 - The end of the Note series and the lack of Z Series success has shifted Samsung's previous twice-a-year launch cycle to mainly a once-a-year cycle for the S Series. In 2022, after years of contraction, flagships finally saw an increase in sales compared to the previous generation, due to strong promotions and the migration of 2021 Note buyers to the 2022 S Series. We believe the S23 Ultra variant is poised to perform well again due to the last significant migration of Note 20 buyers to the S Series. Notably, the S23s are launching on the 30-month anniversary of AT&T's highly successful Note 20 launch and the last Note offered by Samsung. While a positive for the S23 cycle, we do feel Samsung is more exposed than usual for the 2H23 without a refreshed mass-market flagship.
iPhone 14 Concerns Beyond Shortages
December 12, 2022 - COVID-related manufacturing shortages for the iPhone 14 Pro variants are pressuring an already slow iPhone 14 cycle to down 5% y/y vs iPhone 13s. In hindsight, we underestimated the decline of interest in 5G as an upgrade driver in the third year, especially with the continued lack of 5G consumer utility. We also believe the iPhone 14's incremental reduction in Non-Pro innovation relative to the Pro variants (less chip, camera, and display innovation) was poorly timed on the third anniversary of the Non-Pro dominant iPhone 11 cycle. We also believe the stronger-than-expected iPhone 13 cycle, partly fueled by economic stimulus, could have pulled iPhone 14 demand into the iPhone 13 cycle. Regarding the Pro variant shortages, we believe the pandemic has increased consumer willingness to wait and do not feel iPhone 14 Pro delays into 1Q23 will drive material demand destruction. However, we remain concerned we will see a weaker iPhone 14 cycle overall due to timing-related issues with stimulus, 5G appeal, and portfolio restructuring.
Motorola’s Sophomore Slump
December 12, 2022 - After a strong 2021, Motorola has struggled to maintain the significant market share it captured following LG’s exit in 2022. Prepaid market weakness has hurt Motorola's primary sales channel, with Motorola sales declining ~20%, in line with the prepaid market. However, Motorola's postpaid sales have fallen ~15% in a stable market, pressured by aggressive flagship subsidies and the Pixel 6a. While sales are higher at AT&T, Motorola is starting to see slight declines at Verizon and concerning losses at T-Mobile. Now that they have a flagship at all three postpaid carriers, the hard work of competing against Apple, Samsung, and Google's ecosystems of watches, tablets, and headphones begins.
T-Mobile Slowing Upgrades
November 10, 2022 - In 3Q22, T-Mobile reported the lowest postpaid, and its first-ever sub-4%, upgrade rate. We believe this highlights a notable trend following the completion of the Sprint integration. As a value carrier, T-Mobile needs a value-cost structure. Without the ability to raise service plan pricing as part of the Sprint merger agreement and with share gains driven by its improved network quality and cheaper service plans, T-Mobile is slowly pivoting away from aggressive upgrade promotions (see page 4). However, AT&T and Verizon continue protecting their base with strong upgrade offers. T-Mobile is now on track to be the only postpaid carrier to sell fewer smartphones y/y in 2022. Unfortunately, as the US's largest Android carrier, T-Mobile's strategy will disproportionally hurt Android OEMs.
Google’s Tough Love
November 10, 2022 - Low-end Android faces considerable headwinds, including a shrinking prepaid market, a postpaid mix shift to flagship devices, and Apple's ever-expanding market share. Google's support of low-end Android has come in unique ways that, while improving the quality of low-end Android, it increases pressure on already struggling OEMs to do more with less. The Pixel 6a is an excellent example of a high-quality Google device that has seen relative success with the side effect of limiting Motorola's push into the same tier with the Edge 2022 at AT&T and T-Mobile. In a creative collaboration between T-Mobile, Google, and Wingtech, Google's support of the now successful Revvl 6/Pro line has further pressured Nokia, TCL, and OnePlus to develop even better value devices or risk losing more market share. While we see the wisdom of Google's raising-the-bar approach to support the low-end Android market, we now view Google's efforts as, unfortunately, yet another low-end Android OEM headwind.
iPhone 14 Cycle Concerns
October 11, 2022 - While U.S. 4Q22 iPhone ASPs are tracking up ~4% y/y, early iPhone 14s Non-Pro trends
are underwhelming, and we increasingly believe y/y growth vs. the iPhone 13 is at risk. With twenty-five days of data and
channel insights, we feel mild 14 Non-Pro innovation, including last year's chip, waning 5G appeal combined with
economic uncertainty and a price point proximity problem between the Pro and Non-Pro devices ($100 vs $200 last year),
is leading to delayed upgrades. Carrier promotional fatigue is also an evolving concern. In early October, AT&T reduced
its launch promo of $1,000 off with trade to $800, a week earlier than last year. More concerning is T-Mobile adding a
new-line requirement to its iPhone 14 trade-in offer, reducing T-Mobile iPhone 14 blended subsidy by ~25% in early
October. Last year, T-Mobile did not adjust iPhone 13 promos from launch through the end of Q4. If Verizon follows
suit, the promotional environment we thought would soften the recessionary impacts could further pressure the 14 cycle.
GOOG Building on Pixel 6 Success:
October 11, 2022 - With consistent Android flagship weakness and Samsung invariably pricing its
flagships at a premium to Apple's, Android has lacked a well-executed premium alternative brand across US postpaid
carriers for years. Following the moderately successful Pixel 6s, the new Pixel 7s build on the Tensor chip's
groundbreaking computation photography, notably adding super res zoom and photo unblur, features that exceed even
the iPhone 14 Pro Max camera for $200 less. While the Pixel Watch leaves a lot to be desired and the Pixel Tablet is
delayed until next year, there is undoubtedly a push by Google to replicate Apple's ecosystem innovations from an AI and
machine learning position of strength. In what is only the second step of a long Tensor journey, we doubt Apple will cede
any meaningful share in the near term and feel Samsung is most exposed.
iPhone 14 Announcement
September 12, 2022 - Overall, the iPhone 14 announcement does not appear to have created any new headwinds
for Apple. The biggest surprise was the lack of a price increase on the Pro models, and with carrier preorder promotions
coming in flat at AT&T and up at T-Mobile and Verizon y/y, we have increased our US 4Q22 iPhone 14 forecast by ~2%
y/y. With improved clarity, we now believe the Satellite SOS service could be a meaningful upgrade driver for recent
iPhone 12/13 users and longer-term holdouts (five years plus). Users regularly outside of coverage areas due to
recreational activities or a rural residence are likely to view the peace of mind of knowing they can get help in an
emergency as worth the upgrade, especially if the carrier promotions make the upgrade free. In an unusual twist, we can
even see consumers taking the carriers up on their aggressive upgrade offers as a savvy decision in the current inflationary
environment. With relatively weak competition, a healthy upgrade base, and strong carrier promotions, the iPhone 14
cycle is poised to continue where the 12 and 13's left off.
The Case for Z Series 4 Declines Y/Y
September 12, 2022 - While Z Series 4 preorder and early launch sales were up a healthy 10-15% y/y;
early September cumulative sales are tracking slightly down y/y, causing us to lower our expectations. Even with
aggressive promotions, the lack of a material price decrease alongside only minor component and design changes did little
to expand the Z Series 4 into new customer segments. Weaker Z Fold 4 preorders than the Z Fold 3 was an early
indicator of weaker y/y enthusiast demand. Adding to our concerns, the S22 Ultra has dominated the S22 sales mix,
another factor likely to limit Z Fold 4 enthusiast demand. Last year, the Z Series 3 benefited from considerably weak S21
supply, which is unlikely for the Z Series 4 this year. Finally, we believe the fashion element of the Z Flip 4 does not
resonate well with US consumers as in South Korea and Europe. Ultimately, we now expect Z Series 4 sales to be down 5-
10% through 4Q22.
iPhone 14 Tailwinds
August 10, 2022 - The iPhone 14's will launch on the third anniversary of the very successful “value” iPhone 11 cycle and the second anniversary of the first 5G iPhone 12. Record carrier promotions should offer a more value iPhone 11 base plenty of options. Notably, the iPhone 12 was the last cycle where 36-month financing was unavailable. While AT&T's 30 months could keep some iPhone 12 subscribers from upgrading by year-end, both T-Mobile and Verizon have their iPhone 12 base coming off 24-month financing. Should the iPhone 14 screen and camera innovations prove compelling, we expect healthy upgrades from the iPhone 12 base. Net, the iPhone 14 cycle upgrade potential is better than average given the iP11 and iP12 bases available, an improved portfolio dropping the mini variant, record carrier promotions, and strong Android switching momentum.
Verizon Promo Pain
August 10, 2022 - It was a rough Q2 for Verizon with only 12k net adds, vs. 813k and 723k for AT&T and T-Mobile, respectively. While slow to match AT&T promotional strength, Verizon finally reached parity in 1Q22, but by then, it may have been too late. AT&T's aggressive promotions started in the 2H20 and have, in effect, locked more of their base into new devices early, limiting Verizon's ability to switch AT&T subscribers. Meanwhile, T-Mobile's improved 5G network has meaningfully reduced Verizon's superior network perception. While T-Mobile promos peaked in 3Q21, its years of free "add a line" offers have created a defensive moat that limits switching where these free lines become full price. With its premium-priced service plans and an overzealous belief in mm-wave 5G consumer value, Verizon may have little recourse other than to continue spending to protect its base, especially heading into the iPhone 14 and Z Series launches.
Premium Ruling the Day
July 11, 2022 - While total market smartphone sales are roughly flat y/y in 2Q22, there has been a marked shift to premium devices, despite rising inflation and recession worries. In 2Q22, total market low-end (<$400) device sales are down ~10% y/y, while flagship sales are up ~8% y/y. We believe record postpaid promotions with base model flagship AAPL, SAM, and GOOG devices for free with trade have shifted consumers into flagships and increased prepaid to postpaid migration to record highs. With the promotional environment unlikely to slow in 2022 and excess inventory of low-end 4G and 5G devices, we can expect the tier two and tier three low-end OEMs will face an even more difficult 2H22.
Chip Shortage Rounds Corner
July 11, 2022 - For most of 2021, our supply chain contacts predicted a mid-2023 end to the component shortage. However, carrier efforts to hedge supply by ranging additional OEMs combined with improved component availability from China's slowing economy has led to a glut of low-end 4G and 5G inventory exiting Q2. We believe the failure of 5G to lift prepaid sales, compounded by the prepaid to postpaid migration mentioned above, have contributed to excess inventory. With Samsung flagships reaching full supply in Q2, we feel the US smartphone shortage has turned a significant corner and is entering its final innings sooner than expected.
Android Waiting on Google
June 10, 2022 - Premium Android losses to iOS have increased in the last year due to the strength of Apple's consistently improving ecosystem and carrier trade-in offers supported by iPhone residual values roughly twice that of Android. Meanwhile, Samsung's unique contribution to premium Android has been an OS fragmenting multi-year bet on its own folding display innovation that has to date only yielded a compromised premium Android smartphone that unfolds into a compromised Android tablet at an ultra-premium price. OnePlus has lost its way in the premium segment after losing touch with its grassroots following of tech influencers and their corresponding user base-driven innovations. LG's exit, hastened by attempting to keep pace with Samsung's marketing spend, has rightfully kept Motorola from pursuing the premium tier aggressively. Google is the only player with the financial backing and incentive to drive true Android ecosystem innovation. However, while Google is finally building an alternative hardware and services ecosystem, the market will have to wait for Google to scale Pixel manufacturing and develop genuine ecosystem innovations worthy of getting someone to switch from iOS to Android
Verizon Matches AT&T
June 10, 2022 - In early 2020, AT&T began its defensive upgrade promotion strategy to protect its iPhone base ahead of the first 5G iPhone launch and the looming Sprint and T-Mobile merger. With neither T-Mobile nor Verizon believing AT&T could afford to maintain its $800 discount with trade-in promotions, it took until the summer of 2021 for Verizon and T-Mobile to respond. T-Mobile, benefiting from the strength of its improved network post-merger and cheaper service plans, has been better able to compete than Verizon. However, in May, Verizon finally turned to the AT&T playbook and now offers $800 off with trade for upgraders and switchers. It will be interesting to see if T-Mobile can still grow at the same pace with AT&T and Verizon both locking down the premium switcher pool.
Motorola Well Positioned in Prepaid
May 11, 2022 - Both Samsung and Motorola capitalized on LG's departure and gained considerable prepaid share in 2021. Our 2Q22 forecast has Samsung and Motorola tied for the prepaid OEM share lead. A key to MOT's success was expanding upon LG's Stylo branding strategy. Motorola has built successive generations of high-quality and good value-for-the-price devices branded by tier. The "G Play" for the entry model, a stepped-up "G Power" with best-in-class battery, and the more premium “G Stylus” with stylus support. Oddly in 2022, Samsung has merged its A32 and A12 into the A13 5G and A13 LTE. The lack of an A33 has created confusion regarding the follow-on to the popular A32. While the A13 5G is an excellent device, we currently feel Motorola's broader lineup of clearly branded devices with great value are better positioned to maintain prepaid momentum than Samsung..
T-Mobile Shines in Tough 1Q22
May 11, 2022 - Following 4Q21's industry-leading 15% y/y growth in device activations, we forecast T-Mobile to lead postpaid carriers in 1Q22 activations (up ~5%). However, as Q1 progressed, we grew more cautious as T-Mobile slowly removed their aggressive Magenta Max promotions. Then in early February, Verizon shifted to 36-month device financing, leaving T-Mobile as the only carrier without 36-month EIP. With Verizon steadily increasing promotions throughout 1Q22, we felt T-Mobile would likely underperform. However, upon discussions with T-Mobile's channel partners, the lack of 36-month financing was a non-issue as consumers were unaware of anything other than 24 months. In the end, T-Mobile held steady, outperforming on 1Q22 net adds and hitting our original device activation forecast.
GS22 Ultra Dominates
April 12, 2022 - While premium Android focus has shifted to the S22 Series, S21 FE and Z-Series underperformance has accelerated. The Z-Series 1Q22 volumes were roughly 35% of the Note 20's in 1Q21. The S21FE has become an afterthought following the S22 launch. The good news for Samsung is the S22 Ultra is selling exceptionally well compared to previous Ultra devices, helped by the aggressive promotional environment and 36-month financing at AT&T and Verizon. So while selling higher volumes of your premier flagship is undoubtedly not a bad thing, it is notable that Samsung's broad portfolio of bets is coalescing around a single device - the GS22 Ultra.
SE3 Too Little, Too Soon?
April 12, 2022 - We are tracking considerable weakness (down over 50%) in iPhone SE3 sales compared to the SE2 across postpaid and prepaid channels. We believe there are three drivers: First, the SE3 launch proximity to the SE2 has limited the SE3's ability to upgrade the relatively young SE2 base. Keeping the dated form factor and adding 5G and an upgraded processor is not enough to motivate an SE buyer to upgrade early. Second, record postpaid flagship promotions limit SE3 price advantage. With only T-Mobile offering an SE3 promotion, AT&T and Verizon customers can get better deals for iPhone 12 or 13 devices. Finally, considerable prepaid SE3 supply constraints were surprising, but given the current component environment, Apple is likely prioritizing other regions globally and higher-margin devices in general over the SE3. Thus, while we believe the SE3 will sell in enviable volumes for most OEMs over the next two years, the expectation of anything close to early SE2 trends is unreasonable. The SE4 in 2024 should fare better.
iPhone SE3 Thoughts
Mar 9, 2022 - Apple’s iPhone SE3 announcement was slightly weaker than our expectations. A $30 price increase on Apple’s most affordable product is a step backward in prepaid. The SE3 remains $200 above the prepaid sweet spot for meaningful volumes. While we doubt it is a significant consumer concern (particularly an ‘SE’ consumer), the lack of mmWave was a surprise, especially given it is a requirement at Verizon. However, C Band support was a more critical addition, and with a likely SE4 refresh in 2024, Apple has limited exposure to cheaper mmWave devices in the low to mid-tier. We don’t believe either of these points significantly disrupts our expectations. However, Apple is certainly not using the SE3 as an opportunity to gain meaningful US prepaid share.
T-Mo Raining on Galaxy S22 Parade
Mar 9, 2022 - Our initial forecasts for the GS22 series were optimistic given the current promotional environment and the S22 Ultra's appeal to pent-up Note demand. While early trends met expectations at AT&T and Verizon, up ~10% and 15%, respectively, weak reception at T-Mobile for the cheaper S22 and S22+ models (both down ~50% y/y) has managed to offset ~20% S22 Ultra gains y/y and drag T-Mobile's S22 Series sales down ~25% y/y. We speculate T-Mobile's S22/S22+ weakness results from a unique combination of factors. T-Mobile has been more successful than AT&T and Verizon with Samsung's alternative flagship A-Series, Z Flip, and S21 FE models, partially supported by the removal and transition of Sprint's lease offers. Also, Apple and Google have made more significant gains recently at T-Mobile than AT&T and Verizon, where both brands are already more established. While still early in the cycle, it appears the S22s are underperforming at what has been since the merger the largest Android carrier.
Entering the Next Chapter
Feb 9, 2022 - In early 2020, with the looming Sprint & T-Mobile merger and the first 5G iPhone, AT&T dramatically increased smartphone subsidies and offered upgraders the same promotional value as switchers to protect its iPhone base. The shift proved effective; while 2020 postpaid smartphone activations were down 8%, AT&T was up 1%. In 2021, Verizon and T-Mobile embraced AT&T's increased upgrade subsidies. Verizon's broken screen trade-in offers in 2Q21 and T-Mobile's increased trade-in values with higher ARPU Magenta Max plans in the 2H21 drove meaningful improvements. So, despite the global chipset shortage, 2021 smartphone activations were up 11% y/y, with AT&T leading the pack at 16%. However, 4Q21 results show T-Mobile (up 15% y/y) and Verizon (up 3% y/y) have finally found their answer to AT&T (down 4% y/y).
Samsung Managing Compromises
Feb 9, 2022 - The chipset shortage has impacted Samsung's broad portfolio strategy more than any other OEM. The Note 21 cancelation last year was a function of Samsung compromising the Note Series for its global aspirations to grow the foldable market. The S21 FE delay from Aug 21 to Jan 22 was a compromise to support Z Series volumes in the 2H21 and still have an n-1 device for 2022. Samsung also compromised the 2022 A-Series line when it combined last year's very successful A32 5G ($260) and A12 ($160) into its A13 5G ($220). Finally, today's Galaxy S22 Ultra announcement was another compromise of choosing to support its loyal Note base at the expense of the cohesive styling of its Galaxy S22 line. Another fair trade-off but not something we see other major OEMs having to make. So, while the US postpaid market showed limited impact from the shortage (up 11% y/y in 2021), it appears the integrity of Samsung's product portfolio has not.
3-Year Financing
January 11, 2022 - As more carriers embrace 36-month financing, we want to provide our initial view of some of the impacts should it become the standard. Compared to 24-month financing, consumers' monthly smartphone payments decrease by $10 to $15 a month for a typical ($700-$1,000) smartphone. Carriers can then more easily upsell incremental services, including premium-rate plans and other churn-reducing connected devices. Carriers would also benefit from reducing the number of consumers who pay off their smartphones and no longer have an obligation to the carrier. For OEMs, extended financing would support increased prices, offset by an elongation of the upgrade cycle. However, we would note our "average months to upgrade" estimate is already longer than 36 months (40 months) and thus do not believe 36-month terms will significantly impact the upgrade cycle. Finally, we believe the OEMs with other ecosystem offerings in the carrier stores, including smartwatches, tablets, and headphones, will benefit more than others.
Spreading its WING(s)
January 11, 2022 - Following LG's exit from the smartphone business, familiar brands like Samsung, Motorola, and OnePlus have made significant inroads in prepaid. Combined with the chipset shortage, LG's exit has opened the doors for ODM newcomers such as Wingtech, Tinno, and FIH. Interestingly, Wingtech has had more success than more established brands like Nokia and Alcatel, helped by its replacing TCL in manufacturing T-Mobile's Revvl line this year. While the Revvl V+ 5G has seen mild success at T-Mobile, Wingtech's prepaid performance has captured our attention. The Revvl V and Revvl V+ 5G at Metro combined with the Celero 5G sales at Boost have helped propel Wingtech to become the 5th largest prepaid manufacturer behind OnePlus in 4Q21. Should current trends continue, we anticipate Wingtech to overtake OnePlus in 1Q22 and capture ~5% of the prepaid market.
Muted Black Friday Sales
December 9, 2021 - Black Friday weekend sales were weaker y/y with year-round promo strength and an earlier iPhone 13 launch taking some of the punch out of Black Friday, made worse by the low stock situation and a weaker iPhone 13 upgrade base. (See below). Incremental BF promos lacked novelty given the already aggressive promotional environment, with November promo strength ending flat to slightly higher when compared to October. Despite slight improvements, supply remained heavily constrained, with important flagship ship times slipping well past the holidays. With less consumer stimulus y/y and relatively mild y/y flagship upgrades in the iPhone 13 and Z Series, a muted Black Friday makes sense in hindsight.
Negative Echo from 6S Cycle
December 9, 2021 - When we analyze Apple's device cycles and their penetration of our app data panels, we have come across a unique weakness in upgrade potential every three years. The tremendously successful iPhone 6 and 6 Plus launch in 2014 introduced two large-screen devices and completely removed Apple's “small screen” problem. The 6 Series success inadvertently created a trough in Apple's 6S sales the following year. Three years later, as the smartphone upgrade cycle elongated to three years from two, the XS/R cycle was also relatively weak. Since then, the iPhone 11 and 12 cycles have generally been seen as successes, setting up the iPhone 13 on the third anniversary of the weaker XS/XR cycle. So, while promotions and 5G are favorable tailwinds and there are certainly other factors in play, we believe a crucial drag on iPhone 13 sales, currently hidden by supply constraints, is the underlying negative "echo" in the upgrade base that began with the iPhone 6S.
Samsung 1Q22 Reset
November 10, 2021 - Samsung has high ambitions for 1Q22 and seems well-positioned to follow on the y/y success of the GS21s. We expect the Galaxy S22s to launch on Feb 25th with similar price points to the GS21s. The S22 Ultra will come with built-in S-Pen storage and a new ultra-thin form factor. With the lack of a Note series this year and relatively poor reception of the Z-Series, we anticipate 10-15% y/y growth in GS22 launch sales. Samsung is also expected to launch an S21 FE and refresh portions of the A-Series in January. We feel the S21 FE will provide marginal benefit in 1Q22 given its proximity to the GS22 announcement. Meanwhile, earlier A-Series refresh should better position Samsung for tax season.
2H21 Crosscurrents
October 11, 2021 - As we hit the first anniversary of the Sprint / T-Mobile merger, the carrier's offers to upgrade 5G subscribers are nearing record highs. The US Android market is weaker than ever due to the global chipset shortage, lack of premium Android competitors, and Samsung's attempt to transition to the polarizing Z Series. Apple is challenged with how to follow up two successful cycles, each addressing a different part of its base: the value-focused iPhone 11 and the enthusiasts-focused iPhone 12. All of the above, combined with shifts in consumer buying patterns including the pandemic-driven increased willingness to wait and confusion from Apple alternating between Q3 and Q4 launches, has created an unusual number of crosscurrents in the 2H21.
Chipset Shortage Update
September 9, 2021 - The global chipset shortage continues to impact the smartphone market in unique ways. Our first surprise was consumer willingness to wait for out-of-stock Samsung devices to ship in 2Q21, which helped limit Samsung's share losses. Another is the disproportional pressure on T-Mobile's value device portfolio as OEMs shift focus to higher-margin devices. We believe this has created a unique situation for T-Mobile to allow more OEMs to shine. While it is difficult to handicap which OEM will succeed, Nokia, TCL, Motorola, OnePlus and Wingtech can all grow meaningful share at T-Mobile if they can find the supply.
Q2 Postmortem
August 11, 2021 - 2Q21 reported postpaid smartphone activations growth of 19% y/y (18.7M) was much stronger than our 4% (16.3M) forecast. We now believe we underweighted Q2 promotional impacts. Our Q2 w. avg discount for Verizon and T-Mobile grew 100%+ y/y, with June alone up ~200% y/y. We also overweighted the negative impact of the chipset shortage. We now believe the shortage had minimal impact due to consumer willingness to wait a few days for their device to ship. To our surprise, record promotions drove activations up 3% q/q in 2Q21 (when typical seasonal postpaid trends are q/q decline) despite the lack of Galaxy S21 launch in the Q and the chipset shortage.
Why We Like the Pixel 6s
August 11, 2021 - Our positive Pixel 6 stance stems across many facets, with their Tensor SOC as the core y/y improvement. Google will attempt to convince premium Android buyers they do not need the latest Qualcomm chipset. If achieved, Google will lay the foundation for future Pixel success despite a lack of global scale. Another critical improvement y/y is Google's recent messaging deals with T-Mobile and AT&T. We believe these deals will lead to much-improved carrier support. Finally, increased pricing y/y to $600 (Pixel 6) and $800 (Pixel 6 Pro) positions the devices in the sweet spot of US flagship volumes. However, Google must execute in all phases, including marketing, distribution, and device performance, to meet our ~1.0M 4Q21 device forecast. Hopefully, the sixth time will be the charm.
Chip Shortage Impact on Android Q3 Launches
July 7, 2021 - We have not expected a Note 21 launch in 3Q21, as Samsung shifted to maximize the Z Flip 3 and Z Fold 3 supply. However, we now understand chip shortages have also likely killed the S21 FE and will limit the Pixel 5a availability to non-carrier channels, as Google tries to maximize Pixel 6/6 Pro component supplies. The lack of a Galaxy S21 FE ($700) should benefit the Pixel 6's ($600-$800). However, the biggest beneficiary of the supply shortage remains Apple, which has seen little impact thus far. Our supply chain checks continue to indicate all is fine with their late Sep iPhone launch.
Carrier Promotions Increase to New Highs
July 7, 2021 - In June, Verizon and T-Mobile notably increased their promotions to respond to AT&T's consistently aggressive $700+ upgrade offers with trade-in. To us, the June / late Q2 timing of their responses signals T-Mobile and Verizon were not seeing expected Q2 growth. Now the question is, with AT&T showing no signs of changing strategies, what happens next should subscriber growth still prove elusive? Our base case is this level of promotion is here to stay and could quickly get more aggressive.
iPhone 12 Pros Shine
December 14, 2020 - The iPhone 12 Pro variants are outperforming the 11 Pros due to several factors, including aggressive carrier promotions and the introduction of 30-month financing at T-Mobile and Verizon. The increase in base iPhone 12 price has also reduced the “Pro premium” by $100-$130 y/y. We now expect the iPhone 12 Pros to achieve 63% mix of iPhone 12 sales in 4Q20, up from 56% for the 11 Pros last year. Our 4Q20 Apple ASP is increasing to $864 from $840 in 4Q19. Interestingly, the iPhone Mini is underperforming our modest expectations as our checks indicate its size is too small for its full flagship price ($700+).
5G is a Feature Not a Savior
October 8, 2020 - While 5G will undoubtedly be an essential innovation, we view 5G networks as moving along a spectrum beginning in 2019 that will take another two to three years to achieve meaningful consumer utility beyond simple future-proofing. Samsung attempted to charge a 5G premium for variants of its GS10, Note 10, and its entire GS20 portfolio and did not succeed. Even without a premium price, we have seen minimal traction for “value 5G” devices in 3Q20, as they lack the flagship status consumers prefer. We believe it is safe to conclude the attempts to charge a 5G premium failed, and today's 5G is more of a carrier network marketing opportunity than a meaningful smartphone experience worth a premium.