The iPhone 7 is expected to be unveiled a week from today, much of Wall Street seems to view it almost as a non-event. Instead, many analysts are looking ahead to next year’s iPhone, which typically is referred to as the “iPhone 8.”
iPhone 8 super cycle?
Credit Suisse analyst Kulbinder Garcha and team continue to rate Apple stock at Outperform with a $150 price target. They note in their August 31 report that the iPhone 7 cycle is widely expected to be muted due to limited innovation resulting in limited growth. However, they expect the iPhone 8 cycle next year to be a “Super Cycle.”
They say investors are wondering just how large that super cycle will be, and they expect iPhone units to trough this year at 207 million units and then climb to about 250 million in 2018. Interestingly, they expect the main driver of this expansion to be a slight shortening of the replacement cycle, which has been lengthening for quite some time. If the replacement cycle starts to shorten, it would be a key shift in trends for Apple. They look for the replacement cycle to shift from 32 months in 2017 to 30 months in 2018.
The Credit Suisse team notes that investors have been concerned that Apple has lost its innovation mojo as the company continues to trail many top Android devices, which already feature the expected features. However, Garcha and team add that Apple has been trailing Android in specs for quite some time, but its ecosystem and retention rates have remained strong, driving strong upgrade cycles such as the iPhone 6 cycle, which was driven by the increase in display size.
What about the iPhone 7?
But before the iPhone 8 lands on the market, Apple is expected to release the iPhone 7. The company confirmed the previously rumored date of September 7 for its next major event, and the iPhone 7 is expected to hit the market on or around September 16 with preorders starting about September 9.
RBC Capital Markets analyst Amit Daryanani expects the phone to feature the upgraded A10 processor made by TSMC. He also expects the iPhone 7 to lack the 3.5mm headphone jack – a rumor we’ve been hearing for quite some time, although Apple cofounder Steve Wozniak advised against the removal of the jack. Also fans have blasted the company for the decision even though it has not yet been confirmed.
Daryanani also expects better water resistance and, for the iPhone 7 Plus, a dual-lens camera offering quality similar to that of a DSLR camera. He also expects the entry-level memory configuration to be bumped up from 16GB to 32GB. He believes the iPhone 7 Plus will have 3GB of DRAM and that the base model might have it as well. He also predicts faster LTE for both the base model and its plus-sized counterpart.
The RBC analyst believes supply for the iPhone 7 Plus could be constrained, as he believes about a third of new iPhone sales tend to be “skewed” toward the larger size, especially in the early stages of the launch. He explains that a dual-camera system could impede production due to limitations on modules and challenges with yield.
Shares of Apple edged upward by as much as 0.32% to $106.35 during regular trading hours on Wednesday.
