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Is Apple Nearing Peak iPhone?

By Rick Munarriz – Updated Jun 29, 2017 at 3:49PM

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Loup Ventures analyst Gene Munster feels that iPhone sales may top off come fiscal 2019, but -- don't worry -- the reinforcements are coming.

Apple (AAPL 1.37%) lives and dies by the iPhone these days, so it's a good thing the mother of all smartphones should be rolling out a new one in a couple of months. Shares of Apple hit an all-time high last month, not necessarily because of what it's done in the past; it's more that expectations are high for the iPhone 8 to be a bar-raising rollout.

Fiscal 2018 will be a big year for Apple, and there's little reason to think that the next iPhone won't live up to the hype and recent stock gains. However, investors will have to wonder if Apple can keep pushing out game-changing smartphones every few years to jump-start its growth. Gene Munster -- the Wall Street pro who often set the tone in bullish Apple coverage during his stint at Piper Jaffray, before recently moving on to Loup Ventures -- put out a note on the tech giant this week. He looked out over the next few years, and one interesting nugget in his report is that he sees iPhone growth peaking in fiscal 2019. This may lead investors to bail sooner rather than later. But in Munster's view, the party at Apple will continue long after the iPhone is done carrying the load.

An iPhone 7 against a black backdrop

Image source: Apple.

Speculating on specs

Revenue at Apple peaked in fiscal 2015. It's not a coincidence that the iPhone 6, and more importantly the iPhone 6 Plus, which super-sized the iconic smartphone at a higher price point, were introduced just days before the start of that fiscal year. Apple's top line would go on to decline in fiscal 2016. Revenue is inching higher this year, but still shy of fiscal 2015's pace. Analysts don't see Apple breaking fiscal 2015's sales records until fiscal 2018, starting just around the time that the new iPhone hits the market.

Predicting that iPhone growth will peak the following year may seem bearish, but that's just not Munster. He sees Apple Glasses -- an oft-rumored augmented-reality wearable -- rolling out in 2020, lifting the burden of growth from the iPhone, which he sees declining slowly beyond fiscal 2019.

Pushing into wearable spectacles may seem like an odd venue for growth, especially after so many others have stumbled, but Apple hasn't had a problem entering a market that was ripe for disrupting after initial non-Apple flops. The iPhone wasn't the first smartphone, and Apple Watch wasn't the first smartwatch.

Apple Glasses and the rest of the tech giant's product line and growing services revenue won't merely fill in for diminishing iPhone sales; Munster sees growth continuing at a healthy clip. His model has Apple earning $13.20 a share on $292 billion in revenue in fiscal 2022, comfortably ahead of the $8.74-per-share profit on $221 billion in revenue that he's targeting for this year.

Munster is speculating on Apple Glasses, of course. He was also a vocal cheerleader for an Apple living-room HDTV set, which never came to fruition. However, we do know that Apple always finds a way to remain relevant.

It's easy to see why smartphone sales will slow for the industry, Apple included, in the future. We're in the late stage of the migration cycle for high-end smartphones. Carriers have weaned customers off subsidies that once used to cover nearly $400 of the price of new iPhones, making it more prohibitive for folks to upgrade every two years. The iPhone will eventually peak, and if it does happen in two years as Munster is modeling, it's good to know that the call is coming from a longtime bull on the stock who sees Apple already preparing for a post-peak-iPhone world.

Rick Munarriz owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has a disclosure policy.

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