2 Stocks To Profit From Apple’s iPhone 7

| September 16, 2016 | 0 Comments

Apple is shaking up the tech scene with a new round of iPhones, but will it be enough to turn the tables for the faltering tech stock? Find out which two stocks will profit most from the newest release of the iPhone.

Apple (NASDAQ: AAPL) has done it again, shaking up the technology field with another launch of its smartphone. We got a look at the new iPhone 7 last week, with some big changes coming to the best-selling smartphone. Of note, the new iPhone 7 that just went on sale will be water resistant, have an upgraded camera, not have a headphone jack.Apple

But is it too late for Apple?

Apple had a leadership position in the smartphone market, but has been slipping of late. Its advantages with superior design is waning, as new iPhone 7 features, such as water resistance and “better” cameras have been available to Samsung smartphone owners for months. Samsung continues to position itself as a major Apple competitor, even stealing away customers with bigger and better features like wireless charging.

Apple even lacked the ability to really excite customers and the media with the iPhone 7 announcement last week. The market for iPhones is becoming saturated as the new features and upgrades aren’t compelling enough to persuade iPhone owners to upgrade.

The last iPhone, the iPhone 6S, became the first Apple iPhone to sell less than a previous model. That could easily happen again with the iPhone 7.

However, Apple could still come out on top, as it has done something rather revolutionary with its iPhone 7. The company has completely done away with the headphone jack. A move that other smartphone makers will likely follow.

Potential Winner From Apple’s iPhone 7

We’re well on our way to a screen only phone – no buttons, no ports. Removing the headphone jack gets us closer, plus it allows for an even thinner phone. Apple is embracing the wireless future by eliminating the headphone jack.

It might be somewhat obvious, but Apple is the big winner from the iPhone 7. But not for the “obvious” reasons. Assuming that other smartphone makers follow a similar path of doing away with headphone jacks, Apple is positioned to “win” nicely.

This isn’t the first time that Apple has looked to streamline a product by “upgrading” decades old technology; remember the ethernet port and CD drive? Neither of which are included on Apple’s newest laptop models.

Although the iPhone 7 won’t be as huge as past iPhones it will still sell by the millions, which means millions of people without phones that have headphone jacks. And if the quality of the past headphones that come stock with the iPhone are any indication, consumers will be looking to upgrade rather quickly.

Apple will profit from companies looking to take advantage of the Lightning technology that will be available on iPhone 7, where they’ll have to license the technology from Apple. But more importantly, no headphone jack will boost sales of bluetooth headphones.

As such, guess who owns the top bluetooth headphone brand? Apple; the company bought Beats in 2014 for $3 billion and it’s still the number one bluetooth headphone brand, topping the likes of LG and Bose – and owning over 25% of the market share. And the beauty of bluetooth headphones is that they are high margin. Apple should be able to capitalize on the new iPhone 7 release with marketing synergies and strategic placements in Apple stores.

Top Winner From The iPhone 7

Despite the uncertainty of how the market will take to the new iPhone 7 features, one thing remains true, consumers love their smartphones and the heated competition between Apple and Samsung that leads to frequent phone upgrades is a positive for certain phone component makers.

BroadcomThe most notable player is Broadcom (NASDAQ: AVGO), which is not only making money from the expected demand for the iPhone 7, but also succeeding from the Samsung success. Revenues from Broadcom’s wireless chips make up over a quarter of revenues, and this segment’s revenues were up over 25% last quarter.

And as the technology becomes faster and more sophisticated, Broadcom is benefiting from the rise in the per-device dollar chip value. Broadcom provides a variety of chips for the Apple iPhone as well, including the radio frequency products and bluetooth and Wi-Fi chips.

In the end, we won’t know how well (or poorly) the iPhone 7 is doing until Apple releases earnings. Apple is shaking up how they do pre-orders for the iPhone 7. They won’t release pre-order numbers, where all we have to judge the new iPhone is its features. Based on that alone the lack of a headphone jack could be an easy way to boost higher-margin sales. And despite the uncertainty of whether the new features will be enough to help the iPhone 7 outsell its predecessor, the phone will still sell millions and only further fuel Samsung’s desire to outdo Apple – a positive for smartphone chip makers like Broadcom.

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Position: Long AAPL


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Category: Stocks

About the Author ()

Bret Jensen is the lead equities analyst with Investors Alley. He's the editor of their newsletters including The Growth Stock Advisor and Biotech Gems.

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