iPhone 7 To See Robust Demand, Say Research Firms

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Apple shares have declined more than 21% in the last three months amid reports that the iPhone sales would decline this year. Apple bears argue that it is the beginning of the end. But two research firms believe that the Cupertino company still has plenty of room to grow, thanks to the upcoming iPhone 7. Bank of America Merrill Lynch has reiterated its Buy rating on the stock with $130 price objective, while Mizuho Securities analysts maintain their Outperform rating with $120 price target.

iPhone 7 To See Robust Demand, Say Research Firms

BAML survey points to healthy demand for iPhone 7

A survey conducted by Bank of America Merrill Lynch suggests there is high intent among consumers to upgrade to the iPhone 7. This is contrary to arguments that the new device would need revolutionary new features to attract users. On top of that, continued strength in China and India would ensure that there is strong demand for the iPhone 7 even if Apple releases a smaller 4-inch iPhone 5se next month.

The iPhone 7 demand is looking so healthy that it may eat into the iPhone 6S sales as consumers wait for the new models. Out of 1,000 survey respondents, 42% of those who intend to purchase an iPhone said they would wait for the iPhone 7. About 51% of those waiting to buy the iPhone 7 currently own an iPhone 6 or 6 Plus, while another 26% currently own the latest iPhone 6S or 6S Plus.

Among iPhone 5S owners looking to buy a new iPhone, only 21% are waiting for the iPhone 7 launch. Another 49% iPhone 5S owners said they would buy an iPhone 6S or 6S Plus. Bank of America Merrill Lynch also found that only 6% of iPhone users were planning to switch to a different brand. In contrast, 22% of non-iPhone users were planning to switch to the iPhone, which points to continued share gains.

Replacement cycle to support iPhone 7 sales

Separately, Mizuho Securities analyst Abhey Lamba reminded investors that a massive replacement cycle would support the iPhone 7 sales regardless of features. Mizuho Securities expects iPhone sales to decline 30% YoY in the first half of 2016, followed by a 9% rise in 2H2016 sales. There is a normal replacement cycle due to the aging of the hardware that can’t be ignored. Lamba said Apple has a large installed base on the iPhone 6 and older versions.

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