Apple Will Gain From the New iPhone, But Less Than Investors Expect
By the time you read this, Apple Inc. (NASDAQ:AAPL) will have presented its latest iteration of the “iPhone,” its flagship item. It will also introduce a new line of other products, such as the “Apple Watch.” According to rumors, the “iPhone 7” will not introduce radical format changes. The new smartphone will certainly introduce some new features, but what effect will it have on Apple stock?
The new iPhone 7, like other Apple smartphones, will come out with novelties to justify the fanfare. The most emblematic of these will be the removal of the headphones jack, replaced by a lightning port. This could make it water-resistant. The other big feature will be the adoption of a second camera on the front to take even better pictures. But, so far, Apple stock has not moved favorably. Compared to a month ago, Apple shares are trading 1.51% lower.
New iPhone Doesn’t Bring Immediate Gains
AAPL stock typically suffers in the days and hours preceding a new iPhone launch. Moreover, there is still some uncertainty hovering over Apple stock because of the European Commission’s (EC) massive tax adjustment. After a lengthy investigation, Brussels claims that Apple has benefited from a series of illegal benefits from the government of Ireland. Therefore, the EC is demanding that the company pay 13 billion euros in back taxes.
Both Apple and the Irish government have disputed the claim, but it has put a slight damper on the bullish trading in AAPL shares. That said, the tax debacle, while angering many regular taxpayers who wonder why they can’t get the same tax breaks, has not really affected Apple shares.
Still, for Apple stock to fully reflect the effect of the iPhone 7 and the new Apple Watch, investors will likely have to wait until the next holiday season. This is especially the case, as Apple will have introduced the new Apple Watch by then. This item has more of a gadget factor, and it does have the makings of an ideal last-minute “I didn’t know what to get you” kind of present.
Contrary to popular belief, Apple is not the worlds’ biggest seller of smartphones. That honor belongs to rival Samsung, which appears to have a bigger presence in the fast-growing Asian market. Samsung controls almost a quarter of all smartphone sales worldwide. Apple has clinched closer to 13%. (Source: “iPhone Crisis? Apple’s Smartphone Market Share Plunged 12% in Q2,” ETF Daily News, August 18, 2016.) Indeed, Apple had to launch a new iPhone just to stop the hemorrhage of sales toward Samsung and others.
Apple Shares Will Take Off With the Next “Big Thing”
But the iPhone 7, perhaps because of its rush to market, is a stopgap solution. It won’t mark the revolution that Apple needs to beat Samsung and other rivals. Still, revolution or not, the new Apple device will offer much better resistance to water, a longer-lasting battery, a better camera, and a more powerful processor. iPhone sales have dropped for the past two quarters (Source: Ibid.)
The new product has a tough mission.
The new iPhone has not received the same kind of attention as previous iPhones, but demand could be strong. The demand will come in two waves. The first one will immediately follow the launch and the second one will come after the holiday season, and will have bigger weight as far as AAPL stock is concerned. For a bigger jump in its share price, Apple needs another big hit.
Such a hit will not necessarily come in the form of a new iPhone, but it will have the ‘i’ designation. It might be an “iTelevision,” an “iAgumented Reality” product, or perhaps the much-rumored “iCar.” Nevertheless, AAPL shares are still trading far below their highest-ever valuation of $130.00 set in May 2015. This suggests that the iPhone 7 and the new Apple Watch could push the stock back up to that level, if not a little higher. Meanwhile, for Apple shares to skyrocket again—and they will— investors will have to wait for the next big hit product.