Apple Probably Underestimated Initial iPhone 7 Demand

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Apple‘s (NASDAQ:AAPL) new iPhone 7 goes on sale this Friday. While the initial expectations of the device were quite subdued given that it looks similar to the iPhone 6, which debuted two years ago, there have been multiple recent developments that indicate that Apple may have underestimated initial demand for device. Shipping lead times on Apple’s website stood at about 1-2 weeks for most iPhone models five days prior to launch, compared to estimated shipping times of 7 to 10 days during the iPhone 6 and 6S cycles. Below we discuss some factors that we believe will result in Apple’s newest device being in short supply initially.

We have a $120 price estimate for Apple, which is about 15% ahead of the current market price. We estimate that iPhone accounts for about 53% of the company’s stock price.

See Our Complete Analysis For Apple Here

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Apple Wont Be Disclosing Initial Weekend Sales Figures

Apple will not be releasing the first weekend shipment figures for iPhone 7, a departure from its long-standing practice. Although first weekend shipment numbers are generally a function of the initial supply Apple has on hand rather than demand, Apple’s reluctance to divulge figures this year could potentially indicate that they are lower than last year. The company has consistently improved initial weekend numbers over the years, with 2013’s iPhone 5S seeing 9 million in initial weekend sales, while the iPhone 6 and 6S saw sales rise to 10 million and 13 million units, respectively. If the supply numbers had improved this year as well, it’s highly likely that Apple would have disclosed them.

Samsung’s Recent Note 7 Woes Boost iPhone Demand 

Samsung’s resurgent smartphone business suffered a big setback after many units of its latest Galaxy Note 7 exploded due to a battery defect, causing the firm to announce a recall for over 2 million devices, while temporarily suspending sales. The negative news cycle around Samsung’s flagship could hurt the Korean behemoth’s brand equity and call into question its quality standards, while providing a tailwind for Apple, which had actually seen some pressure from well-received Samsung devices such as the S7 Edge. As the incident just occurred earlier this month, it’s unlikely that Apple was able to factor this into its initial production run for the iPhone 7.

U.S. Carrier Promotions Are Stronger This Year

T-Mobile, the third largest U.S carrier, has said that its pre-orders for the iPhone 7 were roughly four times those of the iPhone 6. While this is partly attributable to the growth in T-Mobile’s subscriber base over the last two years (postpaid phone base is up 25% since iPhone 6 launched), the carrier’s promotions – which include offering a free iPhone 7 in exchange for an iPhone 6/6S – are likely proving popular with customers. The other three nationwide carriers followed suit, offering similar offers on the new iPhones. While there is some fine print in most of these plans, we believe that the deals are much more attractive than what we have seen over the last few years.(related: This Year’s iPhone Promos Are Great For Customers, Costly For Wireless Carriers)

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