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iPhone 7 may break Apple's losing streak

Still, no one is expecting a "wow!" from the company's fiscal first-quarter results.

Sarah Tew/CNET

Two years ago, analysts couldn't find enough glowing adjectives to describe Apple's fiscal first-quarter results.

"Stunning," "outstanding" and a "monster" were among their reactions to Apple's blowout quarter. Another simply said, "Wow!"

The iPhone 6 and 6 Plus, Apple's first big-screen phones, drove the company to top Wall Street's highest expectations. Apple sold more iPhones than it ever had before -- 74.5 million devices in 90 days -- which led the company to beat the world record for quarterly profits.

Fast forward to 2017. It's unlikely we'll hear the same sort of enthusiasm when Apple reports results Tuesday for its first quarter, which ended in late December. That's because the iPhone 7 doesn't wow quite as much as its older sibling.

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The iPhone is more important to Apple than ever before, with the company generating about two-thirds of sales from the device. A lot of revenue not directly from the iPhone, like services, is also tied to the phone. But Apple, like other handset makers, is facing waning excitement over phones, something that led its iPhone sales to drop for the first time ever in 2016.

Analysts expect Apple to say it sold more iPhones in its first quarter than a year ago (78 million versus 74.8 million last year, according to UBS), breaking its three-quarter streak of declines. But they're not expecting anything near the blowout in fiscal 2015.

Apple didn't have a comment ahead of its earnings report.

The newest iPhones, the 7 and the 7 Plus, added features like better cameras and water resistance that have pleased many buyers. But the designs look a lot like the 2-year-old iPhone 6 and 6 Plus and the year-old 6S and 6S Plus. That's led many people to opt for older phones instead of buying Apple's latest and greatest, says Barclays analyst Mark Moskowitz.

On top of that, people aren't clamoring to upgrade their phones as often, he said. "Smartphones in general have evolved technologically to become more than good enough to serve most users' digital needs over multiple years or until the device breaks," Moskowitz noted.

Apple's not the only one seeing this shift. The entire smartphone market slowed over the past few quarters as consumers cope with "phone fatigue." Global phone shipments flatlined in 2016, according to market tracker IDC. The estimated 0.6 percent rise to 1.45 billion units is much less than the 10.4 percent growth rate the industry saw between 2014 and 2015.

The holiday-shopping season is typically Apple's biggest quarter, thanks to gift givers and the fact that it's the first full quarter of sales from the newest iPhone.

Overall, analysts expect Apple to report earnings of $3.22 a share, down from $3.28 a year earlier, according to Yahoo Finance. Revenue should climb 2 percent year over year to $77.4 billion. (In October, Apple projected sales of $76 billion to $78 billion, above analysts' estimates at the time.)

The current quarter, which ends in late March, isn't expected to be a blowout either. Some analysts say Apple could forecast weaker revenue than Wall Street anticipates. (Currently analysts expect Apple's fiscal second-quarter revenue to total $54 billion, up 6.9 percent from a year ago.) Along with weaker phone demand, some people could be holding out for what could be huge changes in the iPhone 8, which, if Apple follows its schedule from recent years, will be released in September.

That phone marks the 10th anniversary of the first iPhone and the guess is that Apple will make big design tweaks, like adding an OLED screen to the device for the first time that makes blacker blacks. It may even shrink the bezel around the display -- or eliminate it all together -- to make the touchscreen bigger.

Morgan Stanley analyst Katy Huberty said the iPhone 8 could drive a "supercycle" of sales, with iPhone shipments expected to rise at least 20 percent in 2018.

But for now, Apple's got to get past what could be a boring fiscal 2017.

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