Consumers may have to wait longer than they’d like to get their hands on the new iPhone X due to supply challenges, but Canada’s largest wireless carriers probably won’t be complaining.
The industry may enjoy “noticeably better” wireless margins and customer churn rates in the last half of 2017 due to lower-than-expected hardware upgrades after Apple Inc. released its new slate of devices in September, Barclays analyst Phillip Huang wrote in a note to clients Monday.
Carriers originally expected increased pressure on these important financial metrics from “potentially above-normal upgrade volumes,” Huang wrote Monday. Upgrades can increase churn, the proportion of customers cancelling their subscriptions in a period, as subscribers look to other providers for the best deals and hurt margins since it’s costly to subsidize premium smartphones.
“Every wireless operator selling the iPhone in Canada had built in greater conservatism into their 2017 budget in anticipation of Apple’s 10th-anniversary iPhone launch,” Huang noted.
But the iPhone X, the premium device launched, is facing supply chain constraints from bottlenecks in manufacturing complex features such as 3D sensing, the OLED panel and the new casing for the glass back cover, according to Barclays research.
“While we expect the iPhone X will drive much greater upgrade demand, its supply shortage likely means a significant portion of that upgrade volume will be pushed out to the first half of 2018,” Huang wrote.
Meantime, the iPhone 8 and 8+, improved versions of last year’s iPhone 7 and 7+, aren’t expected to drive above-seasonal upgrade volumes, Huang added.
The upgrade cycle is typically busiest around new iPhone releases and the back-to-school and holiday shopping seasons, but this year wireless players held some big promotions in the first half of the year, Barclays noted. This, coupled with the shortage of iPhone X supply, could noticeably help both margins and churn in the third and fourth quarters.
That said, companies might post weaker margins and churn in the first half of 2018 as more people upgrade to the iPhone X once supply constraints ease, which Barclays researchers believe will likely happen by June.
Desjardins analyst Maher Yaghi, however, believes the iPhone X won’t pressure margins as much as expected. Initial pricing for the flagship device is around $600 across carriers, Yaghi noted in September, indicating the providers are offering a similar subsidy as the iPhone 7 and passing the price difference onto consumers.
“We therefore believe that no significant additional pressure will be put on carriers’ bottom line despite the iPhone X being more expensive than the iPhone 7 was at launch,” Yaghi wrote.
Canada’s Big Three wireless companies are preparing to release their third-quarter results, with Rogers Communications Inc. the first to post results on Thursday. BCE Inc. and Telus Corp. report will follow in the next few weeks.
This content was originally published here.