Commentary

Apple Has an ‘iPhone 8’ Problem

May 03, 2017

The Apple rumor mill could be causing more harm than good.

Apple on Tuesday announced its fiscal second-quarter earnings. And much to the surprise of analysts and shareholders, the company's iPhone unit saw unit sales slip 1% year over year to 50.8 million. Apple's iPhone revenue was up by just 1% to $33.2 billion, thanks to a higher average sales price. The iPhone division's performance was below consensus.

At first blush, it might appear as though there's softness in the iPhone market or perhaps some concern with stiff competition. But Apple says iPhone customers remain committed to the company and are simply responding to a recent surge in iPhone rumors.

"We're seeing what we believe to be a pause in purchases on iPhone, which we believe are due to the earlier and much more frequent reports about future iPhones," Apple CEO Tim Cook said during his company's earnings call on Tuesday.

Over the last few months, rumors have been flying about Apple's reported plans for a future iPhone update. Those rumors suggest Apple (aapl) could release three new handsets this year—including two minor updates to the iPhone 7 and iPhone 7 Plus—called iPhone 7s and iPhone 7s Plus. A third model—which is catching all the attention—could be known as the iPhone 8, iPhone X, or iPhone Edition, and come with major updates over last year's models.

While Apple hasn't commented on what its iPhone 8, the placeholder name generally used for the handset, might look like, a slew of reports suggest it could come with a curved screen, a display that nearly entirely covers the handset's face, and a Touch ID fingerprint sensor baked into the screen. The iPhone 8 could also support wireless charging.

Compared to what Apple is expected to offer in the iPhone 7s line—small updates to the design and components—the iPhone 8 could attract significant demand.

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In a note to investors on Tuesday, BMO analyst Tim Long said that he agrees with Cook that "earlier and more frequent rumors may be behind the current slowdown" in iPhone sales. He added that the recent sales troubles won't affect iPhone demand when the handsets are expected to be released later this year.

Still, Apple will need to weather the next couple of quarters. As new iPhones near, rumors surrounding them only intensify. And it'll be nearly impossible for Apple to distract customers and attract them to existing iPhones when they ostensibly believe it makes sense to wait until later this year and get a big new update. As nice as the iPhone 7 and iPhone 7 Plus might be, customers apparently believe they'd rather have whatever might be coming next.

However, Apple hasn't confirmed that it's planning an iPhone 8. Some recent reports have suggested advances that the handset could offer, including a new screen technology called organic light-emitting diode (OLED), which could be pushing its manufacturing schedule back. And it's possible that the iPhone 8 could be delayed from a typical September launch date to October or even November. Customers might also get some sticker shock: the advanced features could push the iPhone 8's price to around $1,000.

Apple's acknowledgment of iPhone user behavior also suggests demand for the company's rumored iPhone update could be exceedingly high. Those interested in getting the handset, then, should be ready to wait in long lines and move quickly on the pre-order button.

That is, if the iPhone 8 even exists.

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