The iPhone 7 won’t even be out until next fall, but that certainly won’t stop the technology community from speculating about it. Apple guru and analyst Gene Munster of Piper Jaffray released a report this morning with his expectations for the next iPhone, and his view on the chances of sapphire glass in the iPhone 7 runs counter to what others have been saying.
iPhone 7 to get a design change
The iPhone 6S and iPhone 6S Plus didn’t get much of a design change from their predecessors, which is typical of S upgrades, so the iPhone 7 is expected to get a bigger change. Munster suggests that a sapphire glass display could be in the cards, a rumor we’ve been hearing for quite some time, although some think the debacle with GT Advanced Technologies may have deterred Apple from doing that.
You might remember that GTAT was unable to fulfill the company’s supplier contract for sapphire glass despite Apple’s sizeable investment in the company’s sapphire furnace facility. GTAT ended up filing for bankruptcy and blamed Apple in part for strict contract terms, which it claimed resulted in it being unable to meet the terms.
However, Munster also points out that the Apple Watch has a sapphire glass display, so he suggests that it might make sense to add it to the iPhone 7 as well. Further, he noted that Apple moved to the Apple Watch Sport’s stronger aluminum for the casing of the iPhone 6S.
Will the iPhone 7 dump the physical home button?
Another suggestion Munster has for the iPhone 7 is for Apple to get rid of the physical home button. This is a rumor we’ve been hearing for the last several years, and the analyst thinks Apple might finally be able to do it because of the addition of 3D Touch, which made its debut in the iPhone 6S and iPhone 6S Plus this year. By eliminating the physical home button, Munster suggests that Apple could either make the screen a bit larger or make the overall size of the handset a big smaller.
However, the Piper Jaffray analyst sees a 50/50 chance of Apple getting rid of the physical home button. The reason for this is the Touch ID fingerprint reader, which is currently incorporated into the home button. Of course we’ve also heard rumors about and seen iPhone concepts which move the Touch ID sensor into the display. The only question is how close Apple is to being able to do this and whether it can be done along with the inclusion of 3D Touch.
Battery life also important
Munster also observed that battery life is of extreme importance for smartphone users, and he expects Apple to make improvements in this area as well. He noted that over the last few years, Apple has nearly doubled the battery life of the MacBook by incorporating processors and software that are more efficient.
The analyst thinks battery life could have the most potential for significant improvements and that customers would especially welcome an extension in it.
Apple also to benefit from two more catalysts
Munster listed the iPhone 7 as one of the next three important catalysts for Apple stock and the two others being this year’s holiday quarter and the company’s recently introduced annual iPhone upgrade plans. First, he doesn’t think Wall Street estimates are including all the new products that are coming this holiday season even though analysts are aware of them.
He expects Apple to guide for between $75 billion and $77 billion in the December quarter and notes that the consensus estimate is for $77 billion in revenue. While it might seem that consensus estimates meeting the high end of guidance would be bad, Munster thinks Wall Street will see a guide of $75 billion to $77 billion as a positive because the company’s sales beat the June quarter guidance by 3%.
Longer tailwind from iPhone upgrade plans
And finally, the analyst expects Apple to receive a “sustained” tailwind from the recently announced annual upgrade plan for the iPhone. Analysts up and down Wall Street have praised Apple since management revealed the plan. It’s generally expected that the plan will reduce upgrade cycles, thus spurring more growth in iPhone sales.
Munster expects the U.S. upgrade cycle to shorten from about 22 months to about 15 months. He assumes that approximately 75% of U.S. iPhone buyers start upgrading every year by the end of 2018. Only about 10% of iPhone buyers upgrade every year currently. He noted that in addition to Apple’s own plan, U.S. carriers are also starting to offer annual upgrade plans for the iPhone. In fact, Munster sees it “almost as a penalty not to upgrade” because customers keep paying the same amount of money per month for their device, whether they upgrade it every year or not.
As a result of the shortened upgrade cycle, the analyst expects a 10% average annual tailwind to iPhone units in the U.S. over the next three years, adding 3% to total iPhone units. Apple is also planning to bring its annual upgrade plan to international markets, which should increase this tailwind even further. After international markets are added, Munster expects the total tailwind to units might approach 5% to 7% over three or four years or possible even longer.
The analyst reiterated his Buy rating and $172 per share price target on Apple. As of this writing, shares of Apple were up 0.23% at $111.29 per share.
