Apple began selling iPhone 15 today as well as delivering some of the pre-ordered iPhones. The best way to get a sense of demand is by looking at lead times on Apple’s global online stores. While not a science, I’ve noted that over the past decade, iPhones that have longer lead times tend to have stronger sales. Pre-orders started on September 15th, and usually, there is a surge in lead times in the initial few days.

We believe looking at lead times starting on day 4 is more relevant. Since then, Deepwater has tracked average lead times in eight countries increasing across all four new iPhone 15 models:

As a point of reference, a year ago, lead times for the iPhone 14 Pro and Pro Max were essentially the same 3-5 weeks, and that yielded iPhone growth in the September 2022 quarter of 9.8%. This September, investors are looking for iPhone to be down around 2%. This gap between lead times and revenue growth expectations makes me believe iPhone will meet or slightly exceed Street expectations for the September quarter.

For starters, there has been a theme that the iPhone 15 upgrade is underwhelming. While the difference between iPhone 14 and 15 is nominal, it’s important to remember the most frequent iPhone upgrade over the next year will be coming from an iPhone 12, which means the improvement in features is measurable.

The reason I upgraded was to get spatial video. In my demo of Vision Pro back in June, I was blown away by how much better spatial video is compared to today’s video. The feature goes live later this year, and I can’t wait. The other feature I’m quickly liking is the customizable button, which is now set for the camera.

The setup experience is worth recapping because it outlines one of Apple’s competitive advantages: making tech easy. Apple has removed the stress of upgrading and replaced it with delight. Two days ago, I got a message in “Settings” to prepare for my iPhone upgrade by backing my existing phone up in iCloud. Today (September 22nd, launch day) I received my iPhone 15 Pro (upgraded from iPhone 13 mini) at 9am via UPS. It took me 32 minutes and 8 taps to set up my phone and pair my Apple Watch. The taps included decisions related to language, country, credit cards for Apple Pay, Face ID, etc. It’s been a couple of years since I upgraded so I don’t have comparable setup data and my sense is they keep making it easier and faster.

There are two reasons why the phone setup experience is important:

1. It reinforces with existing Apple customers that their products are easy to use which encourages them to purchase additional products.
2. By reducing friction around upgrades it increases the probability of more frequent future upgrades and locks consumers in as a lifelong iPhone user.

I estimate Apple has more than 1.1B active customers (this compares to the company reporting over 2B active devices) that use their products throughout the day. Using products every day and throughout the day is an attribute of a consumer staples company, like Coca-Cola, P&G, and Clorox. Another attribute of a great consumer staples company is making products that customers can’t live without. Apple excels in this category because no one makes the consumer tech stack as easy to use as Apple. Whether it’s setting up and using the phone, computer, tablet, watch, TV, headphones, backup, streaming, or repairing the hardware.

At a higher level, investors wonder when Apple will return to revenue growth (it’s been over a year since they’ve grown) and what is the sustainable growth rate. I believe Apple will return to growth in the December 2023 quarter and project 4% y/y growth compared to the current Street expectations calling for flat revenue. Long term (the next 5 years), I believe the company can grow its revenue consistently at 5% plus.

Apple makes the best consumer tech products in part because they’re easy to set up and use. I believe all of this should translate to AAPL deserving a premium multiple to other tech giants and other consumer staples companies.

Disclaimer