Apple: Slow iPhone 8 Sales May Not Be a Bad Thing

Apple Inc.’s iPhone 8 and iPhone 8 Plus are off to a sluggish start with shorter-than-expected lines in Asia as the two new devices hit store shelves. But what appears to be a negative for the Cupertino, Calif., company may actually be a good thing if it means more demand for the upcoming, and pricier, iPhone X.

Unlike with past product launches, this time around Apple unveiled two devices that are going on sale in September and one, the much-hyped iPhone X, which won’t hit store shelves until Nov. 3. That has created a situation in which some iPhone loyalists appear to be holding out for the iPhone X instead of queuing up for hours to get their hands on the next iteration of the smartphone. Unlike with the iPhone 8, the iPhone X marks a complete overhaul of the device's design, boasting a curved OLED screen, built-in artificial intelligence chip and facial recognition. The seeming lackluster interest in the iPhone 8 has pressured the stock in recent days and prompted worries that demand won’t materialize for the iPhone X, but Morgan Stanley doesn’t see it as a bad thing.

X, the Unknown

In an interview with The Wall Street Journal, analyst Katy Huberty said sluggish iPhone 8 and iPhone 8 Plus sales could indicate more interest in the iPhone X. “From a financial standpoint, that’s the best outcome,” said the analyst noting that because the iPhone X is more expensive, starting at $999 ($1,300 in China), the higher margins associated with it will increase revenue and profits. (See more: Is Apple's iPhone X Threatened by Chinese Rivals?)

According to the Journal, lines at the Apple Store in Beijing's Sanlitun district were short earlier Friday with some of the people buying the iPhone 8 telling the paper they didn’t think waiting for the iPhone X was worth it. China is an important market for Apple given the iPhone’s lackluster performance in the country amid competition from smartphone rivals that are churning out feature-rich phones at a fraction of the cost. In recent months, the company has been moving to regain its luster in the world's most populous country. It recently hired its first vice president and managing director for greater China, it is gearing up to open up two research centers in the country and even kicked out VPN apps that ran afoul of local rules from its App Store.

In an ideal situation, Apple would see all of its models flying off store shelves and would be able to make its revenue target for the September quarter of $49 billion to $52 billion, which includes the iPhone 8 but excludes the iPhone X. But if the two iPhone 8’s don’t deliver, it always has the iPhone X to fall back on. And while Morgan Stanley thinks it may work out for the company, it could backfire. If the pricer device fails to take off when it starts selling in November it could be a big blow to Apple and it’s shares.