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Apple about to begin 'significant' iPhone upgrade cycle, analyst says

Even without knowing what changes the hotly anticipated iPhone 7 will usher in, Maxim Group is expecting "a significant upgrade cycle" for Apple in the coming years, analyst Nehal Chokshi said Wednesday.

Apple topped analyst's expectations for iPhone shipments when it reported fiscal third-quarter earnings on Tuesday, but orders were still down significantly from the year-ago period as customers await the latest iteration of the flagship product.

Maxim anticipates at least two years of annual growth for iPhone shipments. That assessment is based in part on the results of a Maxim survey that suggests the mid-cycle precursor to the iPhone 8, the 7S model, will attract more buyers than the 6S did ahead of the iPhone 7 launch.

"We've been doing survey work for five years, and what we see is, even without knowledge of what's going to be new, there is a significant upgrade cycle coming up," Chokshi told CNBC's "Squawk Box."

In Maxim's view, that should remove one of the underpinnings for a commonly evoked bear case, which sees Apple oscillating between one good year and one bad year for the foreseeable future.

A prominent Apple watcher recently said the iPhone 7 could be released as early as September.

But Steve Milunovich, a hardware analyst at UBS, said the iPhone 7 will drive only moderate single-digit growth in Apple's fiscal year 2017.

"It doesn't look like the features are going to be tremendously different. People are already talking about the iPhone 8 the next year. Our work suggests that people in fact are hanging on to phones longer," he told "Squawk Box" on Wednesday.

UBS research suggests a third of iPhone users are still using older handsets, making it critical for Apple to migrate them to newer models, he said.

Sales in China are key to increasing Apple's installed base, he said. Apple reported sales were down 33 percent year over year to $8.8 billion in the fiscal third quarter, but Milunovich said Apple's Chinese iPhone business hasn't peaked.

"Our surveys in China suggest actually significant market share … increase for Apple over the next couple of years," he said.

To be sure, some analysts fear Apple is selling too many lower-cost iPhone SE models. They say that could lead to thinner profit margins as consumers buy fewer pricey models.

But Sanford C. Bernstein analyst Toni Sacconaghi said iPhone shipments fell less than usual in the quarter because of the success of the SE launch. That boosted earnings per share without dramatically compromising margins, he said.

As for the iPhone 7, he cautioned that the overall iPhone install base continues to grow "quite substantially." As such, he estimates the install base entering the 7 cycle will be more than 30 percent larger than at the start of the iPhone 6 cycle.

"It is certainly possible that fewer people will upgrade, in which case units may not be very exciting, but our belief is at some point upgrade percentages will stabilize and iPhone units should start to grow," he told CNBC's "Squawk on the Street."

"Whether that happens with the iPhone 7 or whether that happens the following year with the 7S or 8 is difficult to know," he said.

Allianz Global Portfolio Manager Walter Price said Apple's larger-than-expected drawdown of channel inventory in the fiscal third quarter sets up the base for the iPhone 7 release.

By drawing down its existing inventory, Apple can fill new inventory more rapidly when it announces the new product in September, he said.

"I think that's why they're confident about the September quarter," he saod on CNBC's "Squawk Alley."

— CNBC's Anita Balakrishnan contributed to this story.

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