iPhone Unlikely To See Meaningful Update This Year, How Will This Impact Apple?

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The Wall Street Journal reports that Apple (NASDAQ:AAPL) is unlikely to make any major design changes during its upcoming flagship iPhone refresh due this fall, as the company holds off to implement some improved technology that is still in the pipeline. [1] This appears to be a tough call for Apple, as iPhone sales have been on the decline amid tepid uptake for the iPhone 6S and saturation in the broader smartphone market. Below we take a look at some of the possible implications for Apple.

We have a $123 price estimate for Apple, which is about 30% ahead of the current market price.

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Upgrade Cycle, Android Switcher Rate Could Be Less Pronounced 

Apple has typically adhered to a two-year industrial design upgrade cycle for the iPhone, making form factor changes on even years, with odd years reserved for meaningful tech upgrades with devices sporting the ‘S’ moniker. While Apple’s ‘S’ devices have typically outsold the devices they are based on, the uptake of the iPhone 6S has been weaker than the iPhone 6, as many customers viewed the device as a very incremental upgrade. If this year’s refresh is indeed based on the same industrial design, there is a strong possibility that upgrade-related sales, particularly to iPhone 6 and 6S customers, will be low. The incentive for customers to switch from Android is also likely to be lower than in recent years, given the strong recent design innovation in the Android space with the introduction of devices such as the curved screen Samsung S7 Edge and Motorola’s modular Moto Z.

Absence Of Design Change Can Lower Costs, Spur Pent Up Demand For 2017 Redesign

That said, there are likely to be some positives for Apple as well. Firstly, maintaining similar design and screen sizes should bode well for Apple’s margins, as it could allow the company to strike better deals with suppliers, who would be supplying somewhat similar components for the third straight year. Additionally, manufacturing yield rates should also be high, given the established form factor and production process.

Apple is reportedly prepping for a complete design overhaul in 2017, which would mark a decade since the launch of the original iPhone. The 2017 device could reportedly sport an edge-to-edge OLED display, in addition to possibly eliminating the physical home button by incorporating a fingerprint sensor onto the screen itself. [1] This could result in a super upgrade cycle, while potentially giving Apple greater leverage over pricing on account of the pent-up demand for a redesigned iPhone. We witnessed a similar trend during the iPhone 6 cycle (FY’15), which saw Apple finally offer larger screen sizes, with shipments growing 37% and ASPs rising 11%.

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Notes:
  1. Apple Unlikely to Make Big Changes for Next iPhone, WSJ, June 2016 [] []