Apple (AAPL) will announce its Q3 2017 earnings following the closing bell on Tuesday, and investors should focus on clues as to when the tech giant will release its upcoming iPhone 8.
The handset is expected to be an especially important offering for Apple, as 2017 marks the 10th anniversary of the original iPhone’s release. It’s for that reason that many investors and industry watchers believe the new handset will receive significant upgrades over the iPhone 7 and 7 Plus compared to previous upgrade cycles.
A vastly improved iPhone, analysts say, could result in an upgrade super cycle with a larger number of users upgrading their devices than in previous years.
“We continue to highlight a degree of pent-up demand from the iPhone installed base ahead of the major iPhone 8 super cycle,” Credit Suisse’s Kulbinder Garacha said in a recent note.
But there are also fears that the iPhone 8, which has alternatively been referred to as the iPhone 10 or iPhone X, could be delayed, due to supply chain issues with the OLED displays Apple is expected to include in the high-end version of the handset.
“In all, we believe the device is likely to be significantly supply constrained at launch, though, we expect robust demand within the installed base,” Mizuho Securities’ managing director of research for the Americas, Abhey Lamba, wrote in a recent note.
According to the Nikkei Asia Review, Apple will reportedly use an OLED display in the top-of-the-line version of iPhone 8, which could sell for more than $1,000. The move to OLED would be a major improvement over the iPhone 7’s screen, which like other iPhone models uses a traditional LED panel.
OLED, or organic light emitting diodes, displays are known for their super color saturation versus the traditional LED panels, and could serve as a big reason for users to upgrade their devices.
What’s more, rumors point to the next iPhone having an edge-to-edge display, meaning the screen will have a significantly slimmer bezel than its other handsets.
But with supplies of the OLED panel reportedly constrained, the iPhone 8 might not go on sale until October with volume shipments going out in November or December rather than September, according to RBC analyst Amit Daryanani.
Still, Credit Suisse’s Garcha says that the delay won’t impact the iPhone 8’s super cycle and has given the stock an outperform rating with a price target of $170, up from $152.
Not all analysts believe the upcoming iPhone will have a drastic impact on the company’s stock price. In fact, Lamba believes the stock price is already benefiting from the 8’s upgrade super cycle.
Watching average selling prices
Outside of hints about the next-generation iPhone, analysts will also be watching for the average selling price (ASP) of units of the current iPhone. A higher ASP means that more customers are opting for the high-end iPhone 7 Plus, which starts at $769 versus the base iPhone 7, which starts at $649.
Lamba predicts that ASP will be down versus the previous quarter as more consumers decide to hold off on buying the iPhone 7 Plus in anticipation of the iPhone 8.
It will also be important to watch revenue for Apple’s services division, which includes things like iCloud, iTunes, the App Store and Apple Music. CEO Tim Cook has been particularly bullish on the services division, saying it will double its revenue by 2020, a prediction shared by Credit Suisse’s Garcha.
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