U.S. Markets open in 3 hrs 23 mins

The unplanned reason the iPhone 7 could be a hit

Daniel Howley
Technology Editor

Well, the reviews are in and the experts — including Yahoo Finance’s own David Pogue — think Apple’s (APPL) new iPhone 7 and iPhone 7 Plus are, well, pretty great.

Not Earth-shatteringly, brain-meltingly, 15-minute guitar solo, “Oh my God, you have to get this thing!” great. Just, you know, pretty great.

Basically, the consensus seems to be that if you have the iPhone 6s or 6s Plus, there’s little reason for you to make the upgrade. If you’ve got an older iPhone, though, you’ll want to move up to the 7 and 7 Plus. In essence, the company’s biggest moneymaker hasn’t surpassed its competitors as much as it’s merely caught up to them.

That’s not exactly the kind of news investors are too eager to hear. After all, consumers, at least in theory, want an iPhone that’s significantly better than the one they already have. And if the rumors are to be believed, that will happen when we get the 10th anniversary iPhone in 2017.

Unexpected gains from a competitor’s misfortune

Normally, this kind of critical reception to the latest iPhones might spell trouble for Apple’s sales and also Apple’s stock.

But the company might have lucked out thanks to some key enhancements to the iPhone 7 and the fact that Samsung’s Galaxy Note7 is being recalled due to its batteries catching fire problems. Samsung’s Note7 is facing a major recall.

In just the past week, Apple shares have rocketed 10% to a 9-month high.


“Samsung’s challenges should benefit Apple,” RBC analyst Amit Daryanani said. ”Given the backdrop of subdued expectations for the iPhone 7, we think there is potential for Apple to surprise on the upside given share gain potential.”

It also seems that initial concerns that the iPhone 7 and 7 Plus wouldn’t perform as well in their first week as their predecessors may have been overblown. In fact, both T-Mobile and Sprint are reporting strong pre-order numbers for both the 7 and 7 Plus. The carriers actually say that pre-orders for the 7 and 7 Plus are higher than they were for the iPhone 6s and 6s Plus.

Don’t get us wrong, the iPhone 7’s camera is a big upgrade

Let’s start with how Apple might be able to squeeze extra money out of its latest handsets. The iPhone 7 and 7 Plus both include 12-megapixel rear cameras. But the 7 Plus adds a second telephoto lens for zooming in your subjects. That’s a rather large benefit for 7 Plus buyers.

Sure, previous versions of the big-screen iPhone have come with their own exclusive camera features; the iPhone 6 Plus and 6s Plus both offered optical image stabilization while their smaller counterparts were left with software stabilization. However, this is the first camera improvement that consumers can easily see and physically use.

The ability to zoom in on a subject while still retaining the same kind of clarity you’d see while taking a normal shot is a huge benefit for users, especially when you consider that previously zooming in on a subject meant that it would become pixilated and unrecognizable.

The iPhone 7 Plus’ new telephoto lens improves its ability to zoom in on subjects.

To get that feature, though, you have to step up from the standard iPhone 7 to the iPhone 7 Plus, which carries a $120 premium.

As RBC’s Daryanani explains in a research note, “We see the dual lens camera option as something that could shift users more towards the larger form factor, which has a $120 higher [average selling price] versus the standard model.”

And it looks as though that’s exactly what’s happening, as online pre-orders for the iPhone 7 Plus are already sold out.

What’s interesting is that, this could have gone in a completely different direction, due to the fact that Apple raised the minimum amount of storage on its base phone models. Previously, Apple sold its phones with just 16GB of storage. Users who wanted more storage had to plunk down an extra $100. And seeing as how 16GB of storage is a paltry amount in today’s mobile world, a number of iPhone consumers were opting to swallow that price increase for more space.

With the iPhone 7 and 7 Plus, the base storage capacity is 32GB, double what you got with other iPhones. So there might not be as much of a reason for consumers to upgrade to a higher storage capacity.

According to Daryanani, though, the improved camera on the iPhone 7 Plus could help offset any loss Apple might experience in terms of consumer upgrades.

But don’t underestimate the impact of Samsung

The biggest gift to Apple, however, might just come from its largest rival: Samsung. In case you haven’t heard, Samsung’s Galaxy Note7 received heaps of praise when it debuted in August. The only problem, well, is the reports that it could explode and catch fire.

The fire has become such a problem that not only is there a global recall of the handset, but it’s now banned from being used on flights. Even New York’s Metropolitan Transit Authority has banned the phone on its subways and buses.

Samsung is issuing a recall of its Galaxy Note7 smartphone

What’s more, Samsung still doesn’t have a definitive timeline for when the Note7 will go on sale again. Considering the Note7’s closest competitor is the iPhone 7 Plus, consumers may simply choose to skip waiting for the phone to come back to market and go with the iPhone.

So while the iPhone 7 and 7 Plus aren’t rapture-inducing super phones, they’re have enough going for them to make them winners for Apple and its investors.

More from Dan:

Email Daniel at dhowley@yahoo-inc.com; follow him on Twitter at @DanielHowley.