Apple Inc. To See ‘Significant’ iPhone Upgrade Cycle

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Apple topped analysts’ expectations for iPhone shipments when it reported its fiscal Q3 earnings results on Tuesday. However, orders were still significantly fewer than they were in the year-ago period as consumers waited for the latest iteration of the flagship smartphone. However, Maxim Group is expecting “a significant upgrade cycle” for Apple ahead.

A trend emerging for iPhone sales

According to analyst Nehal Chokshi, there will be at least two years of annual growth for iPhone shipments. This expectation is based in part on the repercussions of a Maxim survey that suggests the mid-cycle precursor to the iPhone 8, the 7s model, will persuade more buyers than the iPhone 6S did ahead of the iPhone 7 launch.

Chokshi told CNBC’s Squawk Box, “We’ve been doing survey work for five years, and what we see is, even without knowledge of what’s going to be new, there is a significant upgrade cycle coming up.”

This should remove one of the underpinnings for a commonly-evoked bear case, according to Maxim, which sees the iPhone maker oscillating between one good year and one bad year for the coming future.

For the third quarter, Apple’s expectations were still low, but still management’s outlook blew past Wall Street estimates. On Tuesday, the Silicon Valley giant revealed that it earned $1.42 a share on revenue of $42.4 billion in the fiscal quarter that ended June 25, beating the $1.40 a share and $42.2 billion analysts were expecting.

Not all bullish on Apple

However, not everyone is so positive on Apple. Steve Milunovich, a hardware analyst at UBS, believes the iPhone 7 will drive only moderate single-digit growth in fiscal year 2017 for the Cupertino-based company. A third of iPhone users are still hanging on to their older handsets, thus making it quite difficult for the Silicon Valley giant to migrate them to newer models, said Milunovich.

On Wednesday, he told Squawk Box, “It doesn’t look like the features are going to be tremendously different. People are already talking about the iPhone 8 the next year. Our work suggests that people in fact are hanging on to phones longer.”

UBS research suggests that sales in China are key to increasing Apple’s installed base. In the fiscal third quarter, the smartphone maker reported a sales decline of 33% year over year to $8.8 billion. Milunovich, however, believes Apple’s Chinese iPhone business has not peaked.

“Our surveys in China suggest actually significant market share … increase for Apple over the next couple of years,” the analyst reports.

On Wednesday, Apple shares closed up 6.50% at $102.95. Year to date, the stock is down more than 4%, while in the last year, it is down more than 17%.

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