The iPhone 7 Will Be Huge For Apple Stock (AAPL)

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Investors hammered shares of Apple Inc. (AAPL) after management forecast that it would see a year-over-year decline in sales this quarter. Management expects iPhone sales could come in below last year’s numbers, marking the first time in history iPhone sales failed to grow.

The iPhone 7 Will Be Huge For Apple Stock Investors (AAPL)

Source: Apple

That scared a lot of investors out of Apple stock, since the iPhone represents about two-thirds of AAPL’s revenue.

Adding to the worries is the idea that Apple might not introduce enough improvements in the iPhone 7 to spur sales growth.

Bank of America Merrill Lynch recently conducted a survey of smartphone owners to see how many plan to upgrade their devices and whether or not they plan to buy the iPhone 7.

Apple Stock Investors Take Note

42% of respondents to the BofA/Merrill Lynch survey said that they plan to wait for the iPhone 7. More than half of those planning to buy an iPhone 7 currently own an iPhone 6 or iPhone 6 Plus. Another 26% already own the latest version of the iPhone.

What’s more, 21% of iPhone 5s owners planning to upgrade to another iPhone intend to wait for the iPhone 7, while another 49% plan on buying the iPhone 6s.

In Apple’s first-quarter earnings call, CEO Tim Cook noted that 60% of people that owned an iPhone prior to the iPhone 6 have yet to upgrade. At that time, Apple had about 420 million iPhone users, so that represents a market of about 250 million iPhone owners that could upgrade to a new iPhone in the next twelve months.

The survey also found that only 6% of iPhone owners intend to switch to a non-iPhone. Conversely, 22% of non-iPhone owners plan to switch to AAPL’s flagship device. Mr. Cook noted that Apple saw a “record number of switchers from Android to iPhone” in the first quarter, and that trend should continue to gain momentum in 2016.

With those numbers in mind, Apple stock investors are looking at around 200 million existing iPhone owners planning to upgrade to the iPhone 7, with another 100 million or so planning to buy the iPhone 6s. Additionally, there’s a high number of Android users who plan to switch to iPhone, pushing those numbers even higher.

Note that this survey only polled Americans, so these numbers are likely inflated.

The Upgrade Cycle Is a Powerful Weapon for Apple Stock

The survey results point to the huge upgrade cycle that’s coming the way of Apple stock investors. Mizuho Securities analyst Abhey Lamba recently wrote a note to investors noting the upgrade cycle may have extended somewhat over recent years. Still, Lamba doesn’t see users waiting more than 2.5 to 3 years on average to upgrade their devices.

“Apple still has a significant installed base on pre-iPhone 6 versions and many iPhone 6 users will likely be ready for normal upgrades by 2016- end,” Lamba wrote. “We have modest growth assumptions for iPhone 7 over iPhone 6S cycle.”

As upgrade cycles extend from the usual 20 to 24 months to 30 to 36 months, Apple stock investors will have to stave off an adjustment period. Longer upgrade cycles mean Apple sells fewer iPhones per quarter, all else being equal.

Luckily, Apple is still adding Android switchers to help even out the extension in upgrade cycles.

Even without knowing a thing about the iPhone 7, consumers are going to make the next AAPL smartphone huge for Apple stock investors.

As of this writing, Adam Levy owned shares of AAPL stock.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/02/iphone-7-huge-for-apple-stock-aapl/.

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