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What’s driving iPhone 4 sales?

It’s a potent mix of new customers and old, says a Morgan Stanley analyst

Photo: Apple Inc.

One of the unanswered questions about Apple’s (AAPL) latest hit product is how many of the 600,000 iPhone 4s that were pre-sold on Tuesday were ordered by iPhone owners upgrading from their older models and how many by new customers who’d never owned an iPhone before.

Charles Golvin, a wireless analyst at Forrester Research, is a skeptic. “I doubt that a meaningful percentage of these buyers are new,” he told the
New York Times

Morgan Stanley’s Katy Huberty is more sanguine. In a note to clients issued Wednesday evening she cites a proprietary Morgan Stanley survey that suggests the upgrade rate will be more than 50%, but not that much more. Even 50% is considerably higher than the 18% upgrade rate found in a November 2008 survey and 25% since the launch of the original iPhone in 2007.

A loyal and growing installed base is a good thing for Apple, she argues. She estimates that if 30% of current iPhone owners upgrade this year, Apple will sell 42 million units in 2010. If 50% upgrade, it will sell 48 million. In her model, the iPhone installed base rises from about 30 million at the end of 2009 to 100 million by the end of 2011.

“We believe there are several key drivers of iPhone upgrades,” she writes. And she ticks them off. In her words:

  1. Redesigned hardware with many new important features
  2. “Stickiness” of the installed base due to App store and iTunes
  3. 57% of U.S. installed base is not fully upgradeable to iOS4 (i.e. no multitasking)
  4. Early upgrade incentives from AT&T
  5. Maturation of the installed base.

She adds that AT&T’s (T) introduction of tiered data pricing, which can reduce the total cost of owning an iPhone by 20% or more, may also be driving the rush of early pre-orders.

UPDATE: Piper Jaffray’s Gene Munster points out that in an informal Wall Street Journal survey of 8,000 readers (and iPhone owners) published Monday, 62% expected to upgrade to the iPhone 4, 19% said they might trade up and only 19% said they wouldn’t.

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[Follow Philip Elmer-DeWitt on Twitter @philiped]