The fact that more people are hanging onto older iPhones for longer is good news for customers' wallets, but bad news for Apple's future stock price.

One of the most respected Apple analysts out there, Bernstein's Toni Sacconaghi, has said that the iPhone is at risk of turning into the iPad, and that Apple needs to move fast to head off that problem.

The iPad has experienced major shrinkage this year partly because people are hanging onto the devices they bought for longer. Even in the third quarter, when Apple finally saw a boost in iPad sales numbers, revenue from tablets was only up 2% because people were buying the cheaper versions.

According to Sacconaghi, annual iPhone sales might follow the same trend and tank by as much as 17%. That's extremely bad news for Apple, given the iPhone alone accounted for 62% of the company's revenue and profits this year.

The good news for Apple's stock price is that it's already sitting on one of the solutions: The iPhone Upgrade Programme. This essentially lets people buy the newest iPhones from Apple SIM-free with 20 monthly payments. If a new iPhone comes out, customers can upgrade halfway through the programme to the new phone.

The upshot of this model is that customers get a new iPhone every year and Apple gets guaranteed, ongoing payments that increase every year if people decided to swap to a new, more expensive phone.

Bernstein wants Apple to make more of this and become a subscription business. Sacconaghi calculated that the upgrade programme accounts for a "low single digit percentage" of annual iPhone sales.

If Apple can pull this off, Bernstein believes the firm's stock will be "re-rated" higher, essentially meaning investors will be willing to pay more for its shares. Currently, Apple's price to earnings (P/E) ratio is 18x. P/E ratios for software rivals are bigger, with Amazon at 289x, Alphabet at 33x and Netflix at 184x.

Source: businessinsider