Smartphone fans who have been eagerly waiting for an early glimpse of the iPhone 8 from Apple Inc. (NASDAQ:AAPL) finally got their wish. Some rumored specs were unveiled this week. And while not all of them (so far) were terribly surprising, AAPL stock holders were probably encouraged to know the device is apt to be everything it was touted to be.
And yet, for owners of Apple stock, the advent of the iPhone 8 isn’t exactly exciting.
While the early arms-length reviews of the smartphone have been mostly glowing so far, AAPL stock holders know all too well that the company is fighting a headwind. At best, a successful launch of the iPhone 8 buys time.
At worst, a tepid launch of the iPhone 8 will prove iPhone mania has run its course.
An Early Outlook for the iPhone 8
Bear in mind that much can still change between now and then. But as it stands right now, next year’s iPhone 8 should consist of an OLED display, a completely curved glass form, wireless charging and no more home button. The camera should also be significantly upgraded, perhaps even capable of taking 3D pictures. Moreover, the iPhone 8 is expected to be available in three sizes, including a 5.5-inch version.
The usual suspects have already gone ga-ga over the device because … well, that’s just what a good-sized sliver of the crowd does whenever AAPL serves up a new product.
KGI Securities analyst Ming-Chi Kuo is one of the phone’s biggest fans, judging from his sales expectations. Kuo believes sales of the iPhone 8 will be “unprecedented,” with the company possibly shipping between 90 million and 110 million units during the second half of the coming year. That would be impressive, even if the next-generation iPhone is indeed a lower-margin device.
But owners of AAPL stock may want to take such lofty projections with a grain of salt, as no one has answered the critical question.
What the heck went wrong with the iPhone 7?
Consumers Don’t Always Do What They Say
To be clear, the critical sales figures for the iPhone 7 (and 7+) aren’t out yet; the current quarter is the important one. But UBS estimates that orders for iPhones for Q4 2016 (all models) never quite matched Q4 2015’s peak. It also believes orders for Q1 2017 are down overall on a year-over-year basis.
That’s a bit of a letdown to AAPL stock holders, considering how ballyhooed the iPhone 7 was leading up to its launch.
The knee-jerk explanation is that consumers are simply holding off on an upgraded iPhone, knowing the iPhone 8 is going to be a significantly more compelling device than the iPhone 7 was relative to the 6 and the 6s. Problem is, we’ve heard that before, and consumers didn’t always come through when the time came.
Cases(s) in point: Owners of the 5s model were supposed to be waiting for the iPhone 7. It doesn’t appear they pulled the trigger in a meaningful way. The iPhone 6s was deemed by some to be the “biggest incremental upgrade” ever for any iPhone (from the 6), yet the 6s failed to even come close to meeting expectations.
Maybe those would-be buyers were holding off on the iPhone 7.
By that same rationale, it stands to reason that anyone waiting for the iPhone 8 may be willing to wait another year for the iPhone 8s or iPhone 9. They’ve held off before.
And it’s in that light where Apple’s key sales message may be coming back to haunt it and, by extension, Apple stock. That is, AAPL has gotten so good as saying “just wait until you see what we do with the next iPhone” that consumers are doing exactly that.
Two Possible Outcomes for AAPL Stock
To that end, there are two potential outcomes with the iPhone 8, neither of which is going to prove bullish (long-term) for Apple shares.
One plausible outcome is that the iPhone 8 ends up being the smashing success many people seem to think it will be, with the company selling 100 million units in the back half of 2017. That’s certainly possible — if all those 5, 5s and even 4 and 4s users finally make the upgrade.
But if that “powder keg” should explode, a huge swath of iPhone fans will have no reason to upgrade for years. That’s a problem, as Apple’s best target market for new devices is owners of old devices.
This could make 2017 a very good year for Apple stock … but it could also leave no gas in the tank for 2018 and even 2019.
The second plausible outcome is that the iPhone 8 doesn’t draw the kind of crowd it’s expected to in the first place, with would-be customers content with the post-buzz (and likely cheaper) iPhone 7 at the time. Or worse, with those consumers opting for the very impressive alternative phone from Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG), or one of Samsung Electronics’ (OTCMKTS:SSNLF) many options.
Don’t dismiss the idea that the iPhone can be pushed around now. Apple was already losing smartphone market share even before the iPhone 8/iPhone 7 debate surfaced, and is expected to keep losing market share through 2020. If the iPhone 8 fails to convincingly reverse that trend — and it’s a distinct possibility — investors can safely close the book on iPhone mania.
Either outcome is worrisome.
Bottom Line for Apple Stock
As is obligatory whenever someone dares to point out that Apple isn’t infallible … no, Apple isn’t doomed; no, I don’t have a short position in Apple stock; and no, I’m not being paid to bash the company. My only aim has been and still is to look at the company from a minority angle that the rest of the mainstream media won’t, or can’t.
Regardless, there are legitimate concerns that current and would-be owners of AAPL stock need to digest. There will come a point in time when Apple runs out of an army buyers for each new product launch. There will be a time when competitors finally catch up. There will be a time when Apple fatigue sets in and it’s no longer the hip/chic/status brand it used to be.
It looks like we’re getting awfully close to that time.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.