Be Cautious On iPhone 7 Hype On Apple (AAPL)

Apple's iPhone 7 Sales May Look Red Hot, But That Could Fade Fast

The headlines look compelling. According to wireless carriers like Sprint (S) and T-Mobile (TMUS), demand for the newest smartphone from Apple (AAPL) -- the iPhone 7 -- is red hot. The iPhone 7 Plus is reportedly sold out, and as of the latest tally, the initial supply of the lower-end phone is in short supply... and that's just from pre-orders. The popular device launched in stores on Friday, with the crowd in a bit of a frenzy on concerns there won't be enough for the initial clamoring.

It all bodes well for Apple, on the surface. This may be the biggest iPhone hit yet. A closer look at the details, though, reveals there are few details yet. Moreover, while the chatter has been wildly optimistic (AAPL gained more than 11% in three days on the knee-jerk buzz), investors may want to be aware that iPhone launches always start strong. They also cool rather quickly though. And, as of the prior iPhone launch, the taper appears to be falling farther and faster than ever before.

In other words, even if the iPhone is all the rage now, that fervor could fall far, fast, not giving Apple the ammunition it needs to drive solid revenue in the next quarter, and the quarter after that.

The chart below illustrates the idea.  The iPhone has been a growing hit, but the launch of the 6S three quarters ago essentially tied with the launch of the iPhone 6 four quarters earlier. And, sales tapered off even faster after the 6S launched then they did after the launch of the iPhone 6.

(source statista.com)

The chart below paints the same picture from a different perspective...the percent change in iPhone sales following the launch quarter (which by sheer luck has always been the company's first fiscal quarter).

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(source statista.com)

Will things pan out differently this time? Maybe, though if they did, it would buck the trend. It's also worth noting many consumers have already conceded they're waiting for the launch of the next iPhone in 2017, which is said to be leaps and bounds better than the iPhone 7. Between that delay and the fact that iPhone sales are falling faster and faster after the initial launch, Apple could prove to be a disappointment during the first couple of quarters of 2017.

Clearly a high-profile stock like Apple can move even without underlying fundamental support, but it does make it tougher for the stock to move bullishly.