Apple hasn’t innovated since iPhone 4 but the iPhone 7 will sell well

Trading the iPhone 7    4:53 AM ET Wed, 7 Sept 2016 | 02:39

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  Trading the iPhone 7   

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Apple hasn't innovated on its flagship smartphone since the iPhone 4, but a strong brand and loyal customers mean that the company doesn't need to do anything "dramatic" with the iPhone 7 for it to sell well, analysts have told CNBC.

The U.S. technology giant is holding its annual event on Wednesday where it is expected to unveil the iPhone 7, which will see the removal of the headphone jack, waterproofing, new colors, among a number of other features, according to numerous reports.

Analysts note that the iPhone 7 is just a minor upgrade to the iPhone 6s, but that won't necessarily point towards terrible sales.

"They haven't innovated since the iPhone 4, they've made different colors, they've made different sizes, but they haven't made anything that's world breaking," Dan Collins, chief executive of CCO Global, told CNBC Wednesday.

"The iPhone 7 will sell well of course. It won't sell well because of innovative features. But it will sell well because of the 93 percent adoption rate of iPhone users to buy a new device, and the marketing machine that Apple has always brought to their efforts. Easily influenced consumers will feel the need to have the 'latest Apple device' and upgrade – as has always been the case with iPhone consumers," Collins added in a follow up email.

‘Difficult to see down year’

Forecasts on device sales vary but most analysts agree that the iPhone 7 won't perform as well as its predecessor but will still be fine. KGI Securities analyst Ming-chi Kuo, who is known for getting predictions on Apple right, is forecasting 65 million iPhone 7 units will be shipped by the end of the year, a drop from the 82 million iPhone 6s devices in the same period last year.

UBS recently raised its forecasts for iPhone sales, saying that the company will see a rise of 5 percent in its fiscal year 2017 which begins in October. Fiscal year 2018 however, which starts in October 2017, will see 18 percent growth in sales, it said.

"Even with a lengthening upgrade cycle, the size of the F15 class combined with an increasing number of pre-6 phones drives sufficient demand to grow iPhone units by 5 percent in (full year 2017)," UBS said in a recent note. The F15 class refers to iPhone 6 users.

"We believe our assumptions are conservative and provide upside potential should upgrade rates not lengthen as much as predicted. It is difficult to see a down iPhone year in (full year 2017) given current retention rates."

‘Compelling upgrade’

Jan Dawson, an analyst at Jackdaw Research, said coverage of the iPhone is focusing too much on the hardware while ignoring the under-the-hood differences in the devices.

He said on average, a U.S. user will upgrade their phone every two years. That means that iPhone 6 users will be looking to upgrade to the iPhone 7. Now if you take the difference between the iPhone 6 and the iPhone 7, Dawson said that there would be a big difference with the new features being 3-D Touch, Live Photos, 4K video recording, faster Touch ID and noticeable speed improvements.

"That's already quite a bit — now add in camera improvements and whatever else is new in the iPhone 7, and it suddenly becomes a pretty compelling upgrade. This is the way to think about the iPhone upgrade cycle and what Apple announces next week," Dawson wrote in a blog post last week.

"And that's why I suspect Apple may be able to get away with this departure from its normal upgrade cycle and the risks it's taking with keeping the form factor from the iPhone 6 and 6s and ditching the headphone jack."

Stephen Lam | Getty Images

Apple CEO Tim Cook

Stock analysts are in agreement, saying that the company is trading near 13 times price-to-earnings, an important metric used to gauge a stock's valuation, and this shows that lower future growth has already been priced in. But with that, Apple can get away with releasing just a good enough device.

"Where the stock is right now here with the new rollout coming, with all of the great positive things that go with this story, I don't think you need to knock anybody's socks off with a new product for this to continue to remain a solid investment going forward," Sean O'Hara, president of Pacer ETFs, told CNBC Wednesday.