Market Overview

Here's Why Apple Is Focused On Low-Cost Phones And Why iPhone 7 Could Be Weak

Here's Why Apple Is Focused On Low-Cost Phones And Why iPhone 7 Could Be Weak

A large section of the U.S. carrier market is shifting away from phone subsidies in favor of BYOD, or Bring Your Own Device. Elazar’s Chaim Siegel commented that this shift could adversely impact the Fall launch of a new model by Apple Inc. (NASDAQ: AAPL), similar to what is witnessed last year.

Companies like AT&T Inc. (NYSE: T), Verizon Communications Inc. (NYSE: VZ) and T-Mobile US Inc (NASDAQ: TMUS), which constitutes about 83 percent of the US carrier market, have decided against paying for devices being offered to customers along with their plans.

About a third of the market indicated that when consumers are forced to pay for a phone, they prefer to opt for a less expensive device.

Related Link: This Region Causes Goldman Sachs To Cut 2016 Smartphone Estimates Despite Strong Chinese Sales

Risk To iPhone 7

The Elazar report quoted Verizon as saying, “At this point, based on what we know, we think that upgrade rates will be relatively the same as 2015. I can't talk to the fourth quarter yet, because I just don't know what the devices are going to look like in our lineup at this point in time."

Apple had indicated that its upgrade cycle had been slow in 2015. In case 2016 is similar to 2015, Apple could be reporting more weakness, analyst Chaim Siegel pointed out. He added that the upgrade rates in the Fall would depend on the appearances of the devices.

AT&T CFO John Stephens commented that he did not expect much innovation this year. Mr. Stephens was quoted as saying, "With regard to the upgrade rate, I could see it continuing to be very moderate until a new device, until a significant or iconic device comes out. Once that happens, it's a little bit unpredictable. But I could see this, a lower rate continuing throughout most of the year."

Moreover, China and global channel inventories could exert pressure on Apple's results before the iPhone 7 launch. With BYOD gaining momentum, the rest of the year could also be at risk. China contributed about 25 percent revenues, while the US constitutes about 40 percent. “That now makes up about 65% of revenues that have specific headwinds. Our estimates are below the street,” Siegel wrote.


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