Apple Inc. (NASDAQ: AAPL) has reported that it will be releasing its newest iPhone in the fall of 2016 as the iPhone 7, which will be powered by Apple iOS. The firm has already contracted its leading vendors in Taiwan, and orders for the new iPhone 7 are expected to be higher than previously expected. Apple reported that it's planning for an output of 72 million to 78 million units of the iPhone 7 by the end of 2016.
The timing of the iPhone 7 is similar to that of the iPhone 6, which was launched on Sept. 9, 2015 in Apple's final quarter of 2015. Output for the iPhone 6 was originally estimated at 80 million units.
The 2016 iPhone 7 Release
The news reports for the iPhone 7 came shortly after the company announced significantly lower sales for all of its products in the second quarter of 2016. The iPhone product, which accounts for 65% of the firm's total revenue, reported a sales growth rate of negative 18% from the comparable quarter. The iPad was down 19%, and the Mac was down 9%. Apple's release of the iPhone 7 in the fall shows its commitment to the iPhone product, but its lack of new enhancements, delayed mostly until 2017, will begin to drag out the level of innovation between new releases.
The iPhone 7 has a rumored release date of September 2016, which is consistent with other releases prior to the end of Apple's quarter. Limited new features are expected for the iPhone 7. It will likely have the same shape, but some design components will be sleeker, including the camera. Potential main features for the new iPhone include a wireless charger and no headphone jack, which will allow for a thinner phone. Standard enhancements on battery life and screen resolution are also expected.
Customers can expect a full refresh of the iPhone in 2017. The company’s strategy for extending the product life cycle includes the weakening demand for iPhones and new iPhone features in general from its global customers. In the second quarter of 2016, Apple's customers were concentrated in the Americas, Europe and Greater China, where demand for iPhones has been weakening. Sales were down from the comparable quarter in the Americas by 10 percent and in Greater China by 26%.
The lower trend in product sales appears to have just begun in 2016. For the full year of 2015, Apple reported increased revenue of 52% for the iPhone. The higher iPhone sales in 2015 were a result of a 37% increase in iPhone product sales. In 2015, one factor significantly helping revenue was sales growth in China, which was 84% higher than that in the previous year. Revenue also increased by 34% in the rest of Asia, primarily due to increased demand from India. In 2016, Apple is reportedly taking greater steps toward investing more broadly in India, where market demand has heightened and new network connectivity is increasing sales. Sales in India could be a leading factor for the 2016 iPhone 7.
2017 iPhone Refresh
An additional reason for the extended product cycle refresh in 2017 is the iPhone’s 10th anniversary. The anniversary edition of the phone will add greater appeal for all of its customers. Major enhancements may include a new display with no home button to provide a wider screen, a new tempered glass material and a touch ID fingerprint scanner.
Overall, the extended product life cycle could be troublesome for Apple in the near term. With demand already waning and an anniversary release of the iPhone expected in 2017, consumers may skip over the iPhone 7 in anticipation of a better value buy in 2017. Customers will highly anticipate the new iPhone release, but for investors, it's likely to mean more of the same pace of sales growth in 2016 and a potential return to the two-year product cycle after 2017. From an investment perspective, this could mean Apple is headed for near-term lows in its business cycle and stock valuations.