Citigroup: iPhone 17 is unlikely to trigger a replacement wave for Apple, next year's "three drivers" will be key

Citi stated that the iPhone 17 series is unlikely to drive a strong replacement cycle, and the market should focus on three major product launches next year: Advanced Siri, foldable phones, and Vision Pro 2.

On September 3rd, according to news from Chasing Wind Trading Desk, Citi mentioned in its latest research report that while the iPhone has historically benefited from new design appearances, the upcoming Air model and the iPhone 17 series generally belong to a gradual update cycle.

Citi's Asian supply chain research indicates that the expected shipment volume for the iPhone 17 series in 2025 is 82 million units, a slight increase compared to 81 million units for the iPhone 16.

Citi stated that although nearly half of iPhone users are still using the iPhone 14 or earlier models, providing an opportunity for upgrades, the gradual upgrade of the iPhone 17 is unlikely to stimulate large-scale replacements.

The firm believes that the real growth catalysts will come from the "three horses" of Advanced Siri, foldable phones, and Vision Pro 2 next year. Citi maintains an "Buy" rating on Apple with a target price of $245, based on a 28 times price-to-earnings ratio of expected earnings per share in 2027.

Air Model Becomes the Highlight

Apple is expected to launch the iPhone 17 series at the "Awe dropping" product launch event on September 9th. The most significant change is the brand new iPhone 17 Air model, which will be Apple's thinnest and lightest iPhone to date, replacing the Plus model. Other notable upgrades include:

New 3nm chip, finally upgraded to 12GB RAM to support more AI features, camera upgrades especially for the front camera, self-developed Wi-Fi chip, camera module, and frame design changes, as well as a potential $50 price increase for the Pro model with larger storage capacity.

In addition to the iPhone upgrades, Apple is also expected to release new Apple Watch Series 11, Ultra 3, and SE3, along with other product upgrades, including AirPods, HomePod mini, and Apple TV.

Supply Chain Research Shows Flat Shipment Expectations, Consumer Research Shows Mild Replacement Demand

According to Citi smartphone analyst Kyna Wong's supply chain research, the expected unit shipment volume for the iPhone 17 series in 2025 is 82 million units, a slight increase compared to 81 million units for the iPhone 16.

Citi maintains its iPhone unit shipment volume expectations at flat/3% growth for 2025/2026, which translates to 227 million units/234 million units The research report states that the production plan for the fourth quarter of 2025 is basically flat (down 1% year-on-year), indicating a year-on-year growth of 9% for the entire year of 2025. Although this is better than the expectation of basic stability, the growth is limited.

IDC recently raised its global smartphone shipment forecast for 2025 from 0.6% to 1%, mainly driven by a 3.9% growth in iPhone sales (previously expected to be 1.6%). However, in light of weak unit growth, IDC expects the average selling price to increase by 6% year-on-year.

Citi's latest survey on U.S. consumer electronics shows that the expected replacement cycle for smartphones is similar to last year's results, but purchase intentions have declined compared to last year and the past 12 months. Key findings from the survey include:

• Nearly 50% of iPhone users are still using the iPhone 14 or earlier models, providing a good upgrade opportunity for the upcoming new models.

• The iPhone is expected to gain nearly 5% market share growth (mainly from smaller brands, rather than Google Pixel or Samsung).

• Although AI features are receiving attention, they are still not a primary consideration, giving Apple time to catch up in AI.

• Interest in foldable phones has slightly increased to 60%.

In terms of services, about 55% of iPhone users utilize Apple services, and 39% pay for third-party applications, remaining basically flat compared to last year, indicating that Apple still has penetration opportunities. In other product categories, the iPad remains the most popular tablet in terms of purchase intentions.

The "Three Drivers" of Growth in 2026

Citi believes that real growth will come from the three major product launches next year: advanced Siri, foldable phones, and Vision Pro 2, which will drive a stronger replacement cycle.

In terms of AI strategy, according to a previous article by Jianwen, in addition to considering Anthropic and OpenAI, Apple is also in early discussions with Google about the possibility of using Gemini to power the new version of Siri.

Citi believes this reflects Apple's willingness to collaborate with other large language model providers, while Apple will continue to develop its own Apple foundational model and is expected to significantly increase AI investment and capital expenditures.

Regarding foldable phones, although the iPhone has historically benefited from new design aesthetics, Citi believes that true form innovation will be reflected in foldable phones.

In the AR/VR headset market, Citi states that Apple's Vision Pro has captured about 30% share among users of AR/VR devices, and over 30% of users planning to purchase new headsets are considering Vision Pro.

Therefore, Citi expects that the advanced Siri, foldable phones, and Vision Pro 2, the "three drivers" that Apple will launch next year, will be key catalysts for driving a stronger replacement cycle