iPhone Life Expectancy Studies

Data & Metrics

Jan 01, 2016

Client:    Sprint

Staff:      Robert McKnight, Charlie Burkhardt,

                Melony Liebel, Luis Rodriguez

Date:       2016

Model:    CostQuest Cost Model (CQCM)

CostQuest Associates has developed a study of the economic useful life of an Apple iPhone™ and the corresponding Percent Good Table. While many studies have examined physical lives of smartphones impacted by hardware and software failure rates and accidental damage, few have combined that data with the rapid loss in the value of smartphones due to economic obsolescence factors associated with the near-constant release of new features/functionality found in the latest smartphone models.  This combination of physical obsolescence and economic obsolescence provides a true view of the economic life of an iPhone™.

In order to describe the methods used by CostQuest Associates, it is important to understand the terminology and the difference in physical and economic lives.  The American Society of Appraisers (ASA) in The Fundamentals of Appraising Machinery and Technical Assets – Third Edition [1]defines Economic Useful Life and Physical Life in Valuing Machinery and Equipment as:

Physical Life - The number of years a new property will physically endure before it deteriorates or fatigues to an unusable condition purely from physical causes, without considering functional and economic obsolescence.

Economic Useful Life - The estimated period of time that a new property may be profitably used for the purpose for which it was intended. Stated another way, economic life is the estimated number of years that a new property can be used before it would pay the owner to replace it with the most economical replacement property that could perform an equivalent service. Functional or economic obsolescence factors may limit a property’s economic life.  An asset’s economic life will often be less than its normal useful life.

The ASA text goes on to explain, “Normal useful life is the physical life, usually estimated in terms of years, which a new property will actually be used before it is retired from service. A property’s normal useful life relates to how long similar properties actually tend to be used, as opposed to the more theoretical economic life calculation of how long a property can profitably be used. The best evidence of normal useful life is statistical or actuarial data derived from the study of properties that are similar to the subject under actual operating conditions. An asset’s useful life may be longer than its economic life because the owner may elect not to retire the asset from service upon expiration of the asset’s theoretical economic life.” [2]

In concert with the ASA’s views, it is important to understand the definition of economic depreciation from the financial viewpoint.  Economic depreciation represents the loss in value as the asset ages.  

From these similar appraisal and financial concepts, analyzing this loss in value over time (which is a combination of physical and economic obsolescence) can provide a quantitative means of measuring the economic useful life on an asset.

 

[1] American Society of Appraisers, The Fundamentals of Appraising Machinery and Technical Assets – Third Edition, by the Machinery and Technical Specialties Committee of the American Society of Appraisers, pages 532 and 561.

[2] Ibid, p. 64