The launch of Apple's (NASDAQ:AAPL) latest smartphone has lit a fire under the stock. It was widely assumed prior to the announcement of the iPhone 7 and 7 Plus that the devices would bring incremental improvements with no major new features compelling Apple's installed base to upgrade -- and that's exactly what Apple delivered.
But investors grabbed hold of a few pieces of data suggesting that the iPhone 7 is selling well ... and ran with them. As of market close on Sept. 22, shares of Apple were up 6.4% from the day before the official launch event.
Sprint and T-Mobile separately reported that iPhone 7 pre-orders were well ahead of previous years. T-Mobile stated in a press release that pre-orders from Friday through Monday following the iPhone 7 reveal were up by nearly a factor of four compared to the next most popular iPhone. Sprint pegged the increase in pre-orders in the first three days compared to last year at 375%.
Along with this news, reports of long waits for online orders from Apple of certain models fueled the idea that the iPhone 7 and 7 Plus were in high demand. As of this writing, a jet black iPhone 7 Plus won't ship from Apple until sometime in November.
Maybe not that strong
Ordinarily, Apple is thrilled to announce the number of iPhones it sells during launch weekend. Last year, the iPhone 6s and 6s Plus moved 13 million units, up from 10 million the year before. But this year is different. Following the iPhone 7 release, Apple announced that it would halt the practice of disclosing launch weekend sales numbers.
A company doesn't stop reporting figures that make it look good. The lack of data from Apple suggests one thing: The iPhone 7 launch probably wasn't much better than the iPhone 6s launch. If it was, Apple would be the first to let you know.
There are other reasons to be skeptical. Long wait times for online orders reveal that demand is outstripping supply. However, without knowing how the initial supply changed from last year, no conclusions can be drawn.
The strong pre-order numbers from T-Mobile and Sprint are also not quite what they seem. All the major carriers are offering extremely aggressive promotions in order to move the iPhone 7. By trading in an iPhone 6 or 6s, customers can get an iPhone 7 for free, as long as they agree to stick with the carrier for two years. Last year, launch deals for the iPhone 6s were nowhere near as generous, making the comparisons less meaningful.
The real question that investors should be asking is this: How many phones is Apple going to sell through the entire cycle? The iPhone 6s and 6s Plus broke launch-weekend records, but they still produced the first year-over-year decline in quarterly iPhone sales later on. These pre-order numbers and launch-weekend sales reflect demand among early adopters -- those who upgrade to the latest and greatest at the first chance -- not overall demand.
The iPhone 7 is a high-quality device, and Apple is going to sell a lot of them. But the initial information that investors have received about pre-orders and long wait times isn't enough to draw any real conclusions. These aggressive promotions may simply be pulling sales forward, instead of creating new demand. I interpret the fact that the carriers are getting more generous over time with launch promotions as a negative for Apple. It takes more prodding to get customers to upgrade now than it did in the past.
Perhaps the iPhone 7 will return Apple to growth. Perhaps it won't. Right now, we don't have enough information to do anything but guess.