- iPhone sales have flatlined for a decade, and Siri has sucked for about as long.
- And yet, Apple has added roughly trillions of dollars in market value during that time.
- It’s time to think of Apple as more like a utility.
It’s time to think differently about Apple.
The company is becoming a utility, which is hard for fanboys to accept, though it’s not all bad.
The iPhone has become the standard tool for accessing online data and running our lives. Most owners don’t care about cutting-edge AI or the latest speedy chip. They just need the device to keep working.
Apple fans have been aflutter lately over the company’s decision to postpone new AI features, with some analysts predicting lower iPhone sales as a result.
That may be important for a tiny fraction of customers, such as Apple bloggers and the odd person who absolutely needs the latest and greatest iPhone. For everyone else, we don’t care. We mostly want the battery to last all day, our apps to run, our texts to go through, and a camera to just work. This can be done with any iPhone, and it doesn’t need AI.
Similar to an electric utility, we rely on the iPhone a lot. Most of us don’t think about it passionately until something goes wrong. That’s usually the battery degrading. Or when Apple updates the operating system, and a few older iPhones no longer work. Or you damage it beyond repair, or it gets stolen.
This drives an iPhone upgrade cycle that has become incredibly powerful and has little to do with fancy new AI features. Eventually, every one of the roughly 1.5 billion iPhones out there will have to be replaced.
“300 million iPhones have not upgraded in over four years,” Dan Ives, an analyst at Wedbush Securities, wrote recently in an email to Business Insider. “That’s a lot of pent-up demand.”
This is the main driver of iPhone sales now. It’s not that sexy, and it’s not high growth. Instead, it’s big and steady, like a utility.
The chart above, based on data compiled by Dan Morgan, a portfolio manager at Synovus, shows that iPhone sales have flatlined for a decade.
That seems bad. However, Apple shares have soared sevenfold in the last decade, massively outperforming the broader stock market. It’s the most valuable public company in the world. By a lot.
During that same time, Siri — Apple’s main AI offering — has sucked pretty hard. How much did that derail the iPhone upgrade train? Not much, judging by the data above.
Apple did not respond to a request for comment from BI.
Why Warren Buffett likes utilities and Apple
Warren Buffett, a massive utility investor, remains one of Apple’s largest shareholders. In his latest letter to Berkshire Hathaway shareholders, he listed Apple alongside other unsexy, non-AI companies, such as American Express, Coca-Cola, and Moody’s.
He seems blissfully uninterested in the latest whizz-bang Apple technology and how that might help sell more iPhones in a given quarter.
“The idea that spending loads of time trying to guess how many iPhone X or whatever are going to be sold in a given three-month period, to me, it totally misses the point,” Buffett said in 2018.
Buffett likes Apple for similar reasons he loves utilities and other vaguely boring, profitable companies. Many people need what these companies sell, which helps them generate large, reliable returns — including juicy dividends.
‘Panic’ on the streets of Silicon Valley
Electricity. Water. An iPhone. These are essential ingredients for modern life. Without them, things can get difficult quickly. Take my family’s experience as an example.
My wife’s iPhone was stolen last year. She only waited a few hours before driving to the nearest Apple store to hand over almost $1,000 for a replacement. She described the thought of existing without an iPhone as “panic.”
First up: She used two-factor authentication via her iPhone to access sensitive work documents. She couldn’t work without a new Apple device. (She’s added a backup now. Guess what it is? An iPad!)
Then, a long list of other practical tasks revealed themselves to be difficult without an iPhone: Booking an exercise class, texting a group of friends, keeping streaks going on mobile games, and accessing the iPhone’s digital wallet for tickets she needed soon.
My daughter broke her iPhone beyond repair last year. She experienced similar panic and bought a replacement from Apple within 24 hours.
She uses a mobile app on her iPhone to authenticate and access her college accounts for submitting homework and doing other study-related stuff. She also had a plane to catch and was worried about not having the digital ticket.
My wife and daughter both worried about the data on their iPhones and thought it would be safer and easier to get a new iPhone to reclaim this digital information.
This year, my iPhone SE’s battery started running low, and I struggled to hear people well on phone calls. These problems were fixable and probably related to user error. I could have gotten a new battery from Apple, for instance, yet I just could not be bothered. So I bought a new iPhone 16e. It was so easy, and my life was uninterrupted. I did not think about AI once during this process.
Android switching doesn’t really happen anymore
My wife, my daughter, and I did not ever once consider getting an Android phone instead. For many non-technical consumers, switching is too complex.
My wife knew her stolen iPhone was backed up in Apple’s iCloud, so getting the same device again made the replacement process much quicker and smoother.
“I knew that if I bought another one, it would be as painless as possible to access my photos, wallet, apps, contacts, etc,” she told me. “I was already pained by the stolen iPhone. Switching to Android at that moment made no sense. I’d have been breaking myself into jail.”
A 2023 study by Consumer Intelligence Research Partners estimated that only about 4% of Android phone buyers switched from an iPhone. The authors wrote that a big reason was “fear of the complexity of switching.”
“There’s not a lot of iOS-to-Android switching,” said Josh Lowitz, a partner at CIRP. “Switching between platforms is not that difficult, but the habits and iOS-specific apps and connections are hard to leave.”
This is why a year or so of delay in AI features won’t matter much. When everyone’s iPhone stops working, they will buy another, with or without AI.
So we should watch: How many old iPhones will Apple stop supporting? The company does an amazing job keeping these devices running for years. But after a certain point, the hardware just can’t keep up.
That’s when some handsets are dropped from iOS. Later this year, probably in September, Apple will do this again, and millions of people will have to pay to upgrade — just like I have to keep paying PG&E to pump electricity and natural gas into my house.
All is not lost
This is a long way from the cutting-edge technology that Apple fanboys love to nerd out about. There hasn’t been much to get excited about lately on that front. Apple scrapped its car project. The Vision Pro mixed-reality goggles have flopped so far. And now, these AI delays show how far Apple lags behind Google, Meta, and OpenAI.
All is not lost, though. If Apple were a true utility, regulators would cap what it charges customers, which would probably crush the stock.
Instead, Apple can charge what it wants for iPhones. Take the latest example. The cheapest version of the new iPhone 16e costs $170 more than the last entry-level iPhone, the SE. That’s 40% inflation in the base cost to access your digital life.
“Without a new iPhone SE, current iPhone SE owners will likely hold on to their phones a little longer,” said CIRP’s Lowitz. “When they need to get a new phone, they will likely buy the most affordable new iPhone.”
What an incredible business. No wonder Apple has become the world’s most valuable company — with or without AI.
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