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Apple Inc. (AAPL) May Upset Investors By Not Doing What It Should

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Apple Inc. fans would be expecting the firm to make a major iPhone upgrade this year, but nothing of that sort is going to happen, said one analyst. Citing some supply checks, Mark Moskowitz – an analyst with Barclays – in a note on Wednesday, said there will not be “any must-have form factor changes” to the iPhone 7 compared to the iPhone 6s currently available. The iPhone 7 is expected to be launched later this year.

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Apple may upset investors

Apple will instead make some tweaks to the device and update the components, the analyst said. Apple will nix the headphone jack in the iPhone 7, as per the previous reports, but other details on the device are not sure of. The launch of the iPhone 6 in 2014 was widely successful due to major design upgrade and the use of new components in it.

Referring to this, Moskowitz wrote, “In such a case, iPhone 7 could be more of a replacement cycle versus a mega cycle (i.e. iPhone 6).” Going by the history, Apple will launch the iPhone 7 with major design upgrade since it launched the iPhone 6s last year.

If the firm decides to launch a slight upgrade to the iPhone this year, then it will represent a major departure as has been seen historically that every other year, Apple launches major new designs while in the interim years it offers its ‘S’ line that comes with nearly identical designs, but uses upgraded components compared to the previous year’s model.

Moskowitz is assuming that Apple Inc. is changing its track, and this is the reason for his concern about the performance of the iPhone this year. The analyst has even lowered the estimate on the iPhone unit sales. In 2016, Apple is now expected to sell 1.8% less iPhones than it did in 2015.

Previously, the analyst estimated a rise of 2.6% in the iPhone sales this year, but since the device will lack the ‘must have’ component, therefore, Moskowitz has turned bearish on Apple’s iPhone operation.

Moowitz believes a bad 2016 could instill the fear of iPhone “nearing saturation” among the investors. This is not good news for Apple’s investors as the iPhone represents the largest chunk of Apple’s business that has been consistently growing year-over-year.

More hints of soft iPhone demand

Separately, one more analyst has lowered the iPhone estimates, and this time, the reason is the weak chip guidance by supplier Qualcomm. Apple suppliers have released a number of reports in recent weeks, sort of issuing warning that the iPhone maker would see its first ever year-over-year decline in iPhone sales.

Qualcomm supplies chips to Apple for the iPhone 6 and to Samsung for Galaxy 7, and this week, it reported a 19% drop in chip shipments to 189m. The outlook on the chip segment was also weak in the range of 175m to 196m, suggesting an year-over-year drop of 13% to 22%.

Raymond James analyst – Tavis McCourt – said a weak outlook lends support to the reports that the iPhone 6 and iPhone 6S family of phones are still suffering through a hangover period following strong initial sales, and sales of the new 4-inch iPhone SE are below expectations.

In a note to clients, McCourt said, “Although some of this is likely the result of low end 4G share loss in China, we suspect continued weakness in iPhone builds is to blame as well despite the launch of the 5SE (Qualcomm sells into this model as well). Our previous estimates had assumed the 5SE would create some noticeable incremental demand, but mounting supply chain evidence suggests otherwise.”

In March, Apple Inc. supplier Jabil Circuit provided a weak outlook, lowering its full-year earnings per share and revenue guidance, citing ‘reduced demand in mobility.’ Following this, Pacific Crest analyst – Andy Hargreaves – said this supports his view that “current iPhone demand” remains “relatively soft.”

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Aman is MBA (Finance) with an experience on both marketing and Finance side. He has work as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, playing PC games and cricket.

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