iPhone 7 Weakness Could Spell Future Success

Image source: Apple.

As arguably the most successful company ever, Apple (AAPL 2.15%) isn't prone to many mistakes. However, the company's most recent product rollouts have left some investors worried that the tech giant might be losing its legendary ability to make products that consumers simply can't live without.

Apple certainly left something to be desired with its recent refresh of the Apple Watch and MacBook Pro. However, in terms of Apple's recent errors, investors should be most concerned over the potentially underwhelming prospects of the Apple iPhone 7.

Apple lays an egg with the iPhone 7?

Breaking with its tradition of overhauling the iPhone's form factor every even year, Apple elected not to do so in 2016, and that lack of differentiation could well prove to be the handset's fatal flaw. Largely copying the form factor of the iPhone 6 and 6s, the exterior of the iPhone 7 simply gives consumers more of the same. In fact, other than the removal of the visible antenna bands from the back, the addition of dust- and water-resistance, and the shift in color schemes to make way for the new Jet Black color, it's hard to visually tell the difference between this year's and last year's iPhones.

This is all the more unfortunate since Apple actually introduced a number of minor but respectable improvements to the iPhone 7's internal hardware across a number of important areas like processor speed, screen brightness, camera resolution and performance, battery life, and storage. Despite those hardware improvements, there is reason to believe that Apple's iPhone 7 might not have received the same kind of initial reception from consumers as have past models.

For the first time in eight years, Apple declined to release the number of iPhone units it sold in the device's first weekend of availability, leading some to speculate that Apple's streak of yearly increases in first-weekend iPhone sales had come to an end.

Data source: Apple. 

Apple has made a long-standing practice of issuing a press release to brag about its first-weekend iPhone sales -- until now, that is. In commenting on its decision not to release first-weekend data, Apple noted that first-weekend sales tend to be constrained more by its ability to supply enough iPhones to consumers than demand for the handset. It also bears noting that Apple took pre-orders for the iPhone 7 in 28 countries, compared to just 12 last year.

A cynic could question Apple's motives here, especially in light of the apparent lack of a real "wow" factor for this year's iPhone. What's more, did Apple include more countries in its pre-order window to counteract possible soft demand for its latest iPhone? The unfortunate answer is that we won't know until Apple's January earnings report. Interestingly enough, though, a tepid response could actually make Apple stock even more intriguing to investors today, for one important but counterintuitive reason.

If not this year, then next year?

While all this might sound somewhat depressing, there's also an important silver lining that could actually flip this negative into an opportunity for investors within the next year: the forthcoming iPhone 8.

Though the iPhone 7 might test consumers' patience like never before, Apple users tend to be incredibly loyal to the brand. For example, a 2014 survey from research firm Slice Intelligence found that 85% of iPhone 6 and 6 Plus purchasers had previously owned an iPhone. Especially given Apple's strong brand -- often ranked as the most valuable brand in the world -- soft iPhone 7 sales could imply that demand is simply shifting to next year's iPhone, rather than defecting to Android devices.

The narrative of changing iPhone demand from this year to next seems all the more plausible since Apple reportedly plans to completely overhaul the iPhone's design to coincide with the handset's 10th anniversary. Though still a rumor, talk of a dramatically revamped iPhone 8 has been reported widely enough now that it seems to have some legitimacy. Apple's decision to break with its two-year form factor refresh cycle also suggests something big might be around the corner.

To be sure, the major shortcomings of the iPhone 7 could hamper the smartphone giant's sales in the near term. However, even if that proves to be the case, it likely portends a far stronger performance for the tech giant heading into late 2017, and that's something patient investors need to keep in mind when considering buying or adding to positions in the world's largest tech stock.