What Wall Street is saying about iPhone 7 and Apple’s other big launches

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Apple CEO Tim Cook shows an iPhone 7 to performer Maddie Ziegler at Wednesday event.
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Marcio Jose Sanchez/AP

Apple didn’t give Wall Street analysts many surprises at its iPhone 7 and 7 Plus launch on Wednesday.

The phones’ features, particularly the removal of the traditional earphone jack in place of wireless AirPods, had been leaked and widely covered before the unveiling.

Apple also launched the Apple Watch Series 2, which includes built-in GPS and faster processors.

Still, several analysts who cover the company had various explanations for why there could be strong demand for upgrades and for why users won’t wait for the iPhone 8 next year, which is expected to get a design overhaul.

Here’s some of the commentary:


“We continue to expect a solid product cycle from the iPhone 7, based on strong upgrades driven by growth in the installed base and pent­-up demand after the weaker iPhone 6S cycle”: Simona Jankowski, Goldman Sachs

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REUTERS/Stephen Lam

“We maintain our Buy rating and 12-month $124 price target … the primary risks are product cycle execution, end demand, and a slower pace of innovation,” Jankowski said.


“In general, there were few surprises as the highly anticipated event is well-previewed by various media outlets”: Tavis McCourt and Mike Koban, Raymond James

Given low expectations from investors, the analysts believe that wireless audio and the improved camera will convince many people that the upgrade rate should be better compared with the iPhone 6S.


“Higher pricing for iPhone 7 Plus and launch of AirPods a slight positive”: Jim Suva, Citi

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Apple

Investors will view Apple’s AirPods, priced at $159, as a positive “given the higher anticipated gross margins on the iPhone 7 Plus and wireless accessories.”


“Our estimates remain modestly below the Street, but with a solid upgrade opportunity, confirmed by our Aug. 8th survey, and iPhone 8 hype already building, we recommend for long-term investors”: William Power and Charles Erlikh, Baird

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Steve Kovach/Business Insider

The analysts said the Apple Watch Series 2 is competitive with Garmin’s and Fitbit’s higher-end products and is “directionally negative for both,” although Fitbit’s Surge and Blaze products remain cheaper.


“We generally view the iPhone 7 launch positively and think that most of the improvements, while somewhat incremental, will drive replacements and upgrades”: Ben Schachter, Macquarie

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Steve Kovach/Business Insider

iPhone sales will remain stable, and app sales will largely be responsible for Apple’s profit growth, Schachter said.


“The iPhone 7 and 7 Plus also have two and one hour battery life gains over the 6S and 6S Plus. Battery life is the biggest complaint from respondents in our global smartphone survey this past June, and any improvement could drive more users to refresh their iPhones”: Katy Huberty, Morgan Stanley

Stanley and her team added that the new watch is “a more formidable competitor” to Garmin and Fitbit.


“We recommend buying AAPL”: Andy Hargreaves and Evan Wingren, Pacific Crest

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Apple/Niantic

“We believe the iPhone 7 updates are meaningful enough to drive F2017 unit volume at least in line with our current estimates, while the expansion to wireless headphones and Apple Watch improvements create the potential for upside in our model.”


“Apple revealed the audio-jackless iPhone 7 this morning, and we view Cirrus as the biggest beneficiary, as we anticipate an incremental $2.50 in content associated with the Lightning ear pods, Lightning adapter, and second stereo speaker”: John Vinh, Pacific Crest

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Steve Kovach/Business Insider

Cirrus Logic makes audio processors that go into smartphones, TVs, and other devices.

The analysts said it’s unclear whether Cirrus has components in the AirPods, but they wouldn’t be surprised if that were the case, given the company’s close relationship with Apple on audio.


“Overall, we thought that the phone was an improvement over previous models, but not a game changer that will reignite a significant upgrade cycle”: Sherri Scribner, Deutsche Bank

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Nowhereelse.fr

“It continues to be difficult for Apple to truly surprise with its new products given significant supply chain leaks, and we felt today’s announcements were essentially in line with supply chain chatter,” Scribner wrote.

Scribner added that Apple’s shares remain fairly valued, with lower valuation balanced by challenges from slowing smartphone growth and a saturated iPhone base.


“We notice this year the iPhone 7/7+ ramp-up schedule is a few weeks later than last year’s, likely due to yield rate challenges in water resistance, but we think the impact of this situation, if any, should be just short term”: Anne Lee and Shaotang Lee, Nomura

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iFixIt

If the new phones have less inventory risk than the iPhone 6S and 6S Plus, shares of iPhone suppliers should start to move higher in anticipation of the 10th anniversary launch next year, they said.

Their top Buy ideas include Largan Precision, a supplier of camera lenses, and Flexium, a maker of circuit boards.


“Fundamentally, we think today’s event is an incremental positive as updated iPhones combined with an extra week benefits in Dec-qtr, should enable a strong and profitable iPhone cycle”: Amit Daryanani, RBC Capital Markets

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REUTERS/Wong Campion

Apple’s expansion of its iPhone upgrade program to the UK and China should help accelerate demand and share-price gains, RBC said.


“While iPhone 8 has the potential to be a big cycle, we believe there is limited visibility given the off cycle and, if history is an indicator, believe it too early to be investable”: Maynard Um, Wells Fargo

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Reuters/Beck Diefenbach

Um downgraded Apple shares to Market Perform from Outperform.


“The main financially interesting point for us was initial iPhone availability in 28 countries compared to just 12 last year. This could boost initial sales when compared to last year”: Rod Hall, JPMorgan


“On net, we see the phone’s component improvements as mirroring consumer needs, but it is unclear how the offerings may affect upgrade rates relative to the past year”: Toni Sacconaghi, Bernstein

The rollout to more regions should help fourth-quarter unit sales, while potentially pulling from December-quarter sales, Sacconaghi said.


“With challenges for Samsung in the Galaxy Note 7, we believe Apple is well positioned to maintain and possibly enhance their market penetration during the holiday season”: T. Michael Walkley and Joshua Reilly, Canaccord Genuity

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Steve Kovach/Business Insider

“We maintain our belief iPhone sales will return to growth in Q2/F2017 bolstered by the incremental features released in iPhone 7 and reiterate our Buy rating and $120 price target,” they wrote.


“Although we were not surprised by most of the announcements, we believe the design improvements make for attractive phones, which will be meaningful upgrades to the aging installed base”: Tim Long, BMO Capital Markets

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Apple

“Unlike the company’s competition, which seems unable to create a coherent long-term platform, we believe Apple’s innovations (while they may appear to be unimpressive due to the lack of a significant product refresh) are moving in the right direction”: Anil Doradla, William Blair

“Even without rolling out products as earth-shattering as the devices that were debuted in the past, Apple remains the market leader in innovation and the company’s business model of introducing high-end smartphones at high average selling prices will continue to create good returns for Apple and its shareholders.”


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Reuters/Beck Diefenbach

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