Apple’s New IPhones Seen Fueling Switch From Android

iPhone 6 and iPhone 6 Plus
An attendee displays the new Apple Inc. iPhone 6 for a photograph as the iPhone 6 Plus is displayed after a product announcement at Flint Center in Cupertino, California on Sept. 9, 2014. Photographer: David Paul Morris/Bloomberg

Apple Inc.’s newest iPhones are fueling a surge in trade-ins of Android-based smartphones, threatening to loosen Samsung Electronics Co.’s grip on the large-screen smartphone segment as users switch allegiances.

When Apple’s main product, featuring bigger displays and faster chips, goes on sale starting in Australia, they may be best remembered as the generation of iPhones that won over consumers from rival smartphones. Trade-ins of Samsung phones with smartphone reseller Gazelle Inc. tripled last week and about a quarter of potential iPhone 6 buyers are new to Apple’s ecosystem, according to RBC.

“I had talked to friends about my loyalty to Samsung and, before that, I was a BlackBerry loyalist,” Sharyn Funamura, 42, a lawyer in Berkeley, California, said in an interview after telling friends on Facebook that she’d pre-ordered an iPhone 6. When Apple “finally addressed a lot of the reasons why I hadn’t bought an iPhone yet, then I just said, ‘OK, I bought your phone.’”

Chief Executive Officer Tim Cook is counting on customers like Funamura to break open the premium large-screen smartphone market. The iPhone 6 has a 4.7-inch display and the iPhone 6 Plus has a 5.5-inch screen, while the previous version was at 4 inches. They’re part of a broad product rollout aimed at bolstering Apple’s lineup ahead of the holiday shopping season.

Funamura, who is replacing her Samsung Galaxy S4 that has a 5-inch screen, said she was attracted to the new iPhone because it makes reading e-mails and surfing the Internet easier. After ordering online last week, Funamura said she’s expecting delivery tomorrow.

Adam Yates, a spokesman for Samsung, declined to comment.

Trade-Ins

The new iPhones arrive at Apple stores in the U.S., Australia, Canada, France, Germany, Hong Kong, Japan, Puerto Rico, Singapore and the U.K. The new handsets will be available in 115 countries by year’s end, according to the Cupertino, California-based company.

Buzz has been building since the new iPhones were unveiled on Sept. 9 at an event near Apple’s headquarters, with pre-orders topping 4 million units in the first 24 hours and surpassing earlier releases. A third of Android users polled by Boston-based Gazelle said they’re likely to upgrade to the iPhone 6, with 39 percent saying the bigger screen was driving the decision. Last year, a 10th of the smartphones traded in when the iPhone 5s and 5c went on sale were Android-based devices, according to Chris Sullivan, Gazelle’s CEO.

“We’re seeing a higher propensity to switch,” Sullivan said. “The combination of the screen size and the functionality” indicates that “this is going to be a strong and compelling product for Android users to switch,” he said.

Bad Dream

Samsung, which sells a variety of multipriced Galaxy devices running on Google Inc.’s Android operating system, has already seen slowing sales. Xiaomi Corp. has been luring away customers with lower-priced handsets, while Apple competes on the high-end.

RBC Capital Markets polled 6,000 consumers and found that “an impressive 26 percent of respondents who intend to purchase an iPhone are new” to Apple’s ecosystem, with the majority coming from Android, Amit Daryanani, an analyst at RBC, wrote in a note to investors.

Samsung’s global market share slid to 25 percent in the second quarter from 32 percent a year earlier; the Suwon, South Korea-based company reported sales and profit in July that missed analysts’ estimates.

“This is going to be a nightmare for Samsung,” Tim Bajarin, an analyst at Creative Strategies Inc., said of the larger-screen iPhones.

Supply, Demand

Maintaining inventory may be a challenge for Apple as it builds the larger phones. Manufacturing the 5.5-inch model is more complicated than the smaller version, resulting in lower production efficiency that must be overcome before volumes can be increased, a person familiar with the process has said.

While demand is strong, sales this weekend may reach 7 million to 8 million, failing to match or exceed last year’s first weekend sales of 9 million units of the iPhone 5s and 5c, Toni Sacconaghi, an analyst at Sanford C. Bernstein & Co., wrote in a note to investors. Sacconaghi attributed it partly to supply constraints and that China isn’t one of the first countries to receive the devices.

“We still believe Apple is facing significant production constraints due to a move toward larger screen phones,” Ben Reitzes, an analyst at Barclays Plc, wrote in a note to investors. Apple is poised to ship more than 61.5 million iPhones in the fourth quarter, surpassing last year’s record of 51 million, he said.

“There’s no lack of demand and that’s the key, so the real issue is what’s the stock pile, how many units did they build in advance?” said Carl Howe, an analyst at 451 Research LLC. He estimates Apple may sell 12 million to 15 million of the new devices this weekend.

Apple said this week that demand was exceeding pre-order supplies, meaning many customers won’t receive their handsets until next month. The company said there will be phones in stores tomorrow and encouraged customers to show up early.

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