Apple Inc. (NASDAQ:AAPL) stock is down more than 7% year-over-year and there is no sign of improvement anytime soon. The reason for the slump? The tech company’s yet-to-be released flagship smartphone, the iPhone 7, is failing to compel consumers to upgrade, says Oppenheimer analyst Peter Uerkwitz. Uerkwitz, who has the street’s lowest expectations for the iPhone, also noted that it is likely that most Apple smartphone users will skip the iPhone 7.
Although Apple is down, it is definitely not out. The Cupertino-based tech company will be betting big on virtual reality next year and this just might be what Apple need to rebound. Although iPhone 7 won’t be launched until September, the iPhone 8 is already setting the internet abuzz with excitement because of its possible VR-based features.
“We are bullish on [the iPhone’s 2017 upgrade] due to potentially substantial changes with new aesthetics and features that enable a better mobile virtual reality experience,” Uerkwitz wrote in a Tuesday note to clients.
He also predicted that although iPhone sales in the 12 months ending Sept. 2017 will drop 6.4% year-over-year, which is 10% below analyst consensus, they would increase by 24% in 2018 to 245 million units, which is about 3% above Wall Street’s estimate. Uerkwitz said that if predictions that consumers will skip iPhone 7 turns out to be true, the pent up demand for the iPhone 8 will be much higher than what the Street expects.
Apart from playing catch up with Samsung and Google (NASDAQ:GOOGL) with mobile VR, Apple is likely to make a number of upgrades in the iPhone 8, including an OLED screen, a slimmer and lighter body, and faster processors. Samsung and Apple teamed up to develop a virtual reality headset called Gear VR. The headset only works exclusively with Samsung phones.
Meanwhile, analysts at research firm Drexel said suppliers are ramping up for massive sales of the upcoming iPhone 7 smartphone. Drexel, which monitors the sales and preliminary data from major Apple suppliers, noted that the month of July tends to show an increase in sales because of the tech company’s seasonal release of new iPhone models.
“This July was the second-best July performance for our Apple monitor,” says Drexel rep. The firm expects that the release of iPhone 7 will generate a handsome return to iPhone sales growth.
Still, Oppenheimer analyst noted that even if the iPhone maker experiences growth returns in fiscal 2018, the company will be facing a tougher playing field. With Samsung and Android phones covering more ground at a much faster rate, Apple is not only fighting for sales growth, it is also bound to defend its turf.
Last month, Apple saw a 14% to 15% sales increase for suppliers’ month-over-month, which is higher than the 9% average over the past 11 years. Apple’s stock is up 0.44 to $108.81 on Wednesday. The iPhone maker remains on the green since suppliers are prepping for a massive iPhone 7 launch.