Apple’s Booming iPhone Core Set Will Drive Sales of Services and Devices, BofA Analysts Forecast – Apple (NASDAQ:AAPL)

B Securities – maintains analyst Wamsi Mohan Apple Inc AAPL with a Buy rating and a $230 price target.

Mohan said that at the end of 2023, the global iPhone installed base (IB) was around 1.2 billion units.

Used iPhone IB is growing faster than new iPhone IB, although to a lesser extent (2017-22 CAGR of 16% vs. 3%) and is expected to continue at a higher growth rate (2022-26E CAGR of 15%) vs. from 2%).

According to the analyst, a larger IB may ultimately result in greater service consumption and incremental device sales (halo effect).

The value of iPhone IB in the rest of the world is growing faster than in other regions, and given the opportunities presented in emerging markets, this trend is expected to continue.

Mohan identified IB as a critical indicator of the potential of the Apple ecosystem. Overall IB grew to over 2.2 billion units.

With the advent of Apple Intelligence, Mohan saw replacement cycles shrinking, creating a more meaningful replacement dynamic.

For calendar years 2025 and 2026, Mohan considered the consensus iPhone units of 241 million and 238 million to be too low (compared to his likely conservative estimates of 247 million and 257 million), given his analysis suggesting that the 230 million and 241 million units are solely due to the dynamics of the replacement cycle, without taking into account the significantly increased switching activity.

With IB’s total size of 2.2 billion devices, that equates to less than 50% of revenue, which the analyst says leaves room for significant further penetration of services into IB.

As economic growth shifts to the secondary market, which Mohan noted is a more price-conscious consumer, initial services come with lower costs that should increase over time.

Mohan said Apple has successfully monetized its IB by connecting technologies such as search or developers in the app store to a very affluent user base.

He noted that Apple could similarly monetize AI by combining various LLMs with users’ IBs. Mohan further noted that pricing power for equipment and services represents an additional opportunity.

Reduction: At last check on Wednesday, AAPL stock was up 4.01% at $215.45.

Photo courtesy: Apple