Let me start by saying, I’m not an Apple focused analyst, like hundreds of others out there. My focus has been, and will remain small cap stocks. With that said, I think there are a few things that the “late to the party” bears might want to consider before earnings. And let me quickly mention the massively oversold nature of the stock isn’t one of them.
First, a reduction in iPhone 5 display orders is not necessarily a bad thing. Not only could this simply be the natural order of events in AAPL‘s business process, but it could also mean quite a bit more. It is possible that Apple’s product cycle is shortening, in an effort to keep up with their competitors. There have been rumors of beta-testing for an iPhone 6, but they’re just rumors right now. Given the leadership change at the company, I suspect we may see newer product releases more frequently.
Speaking of leadership change…
Tim Cook just left China where he was reported to be hashing out issues in the hopes of striking a deal with the country’s largest cell phone carrier, China Mobile. Remember,China has the potential to be Apple’s largest market… and in-roads with the country’s largest carrier could be a massive windfall for this tech giant.
But don’t forget the sales from last quarter…
AAPL is estimated to have sold nearly 50 million iPhone 5 units in the final quarter of 2012. That would be an unrivaled single-product sales record. I’m not certain what’s bearish about that… even if they can’t continue to maintain such a quarterly sales pace.
All of the above points have already been made, in various forms by one analyst or another. However, my last and most important point should be noted…
Many US-based users didn’t have a chance to get their hands on a subsidized iPhone in the last two years. Consider that Sprint and Verizon Wireless, combined, make up roughly 50% of the US cell phone market. With that being the case, many customers using these carriers were already locked in a previous phone when the iPhone became an option. So that means a good portion of this half of US cell phone users didn’t have a chance to buy a subsidized iPhone from their carrier. That has the potential to be a pretty big number to say the least.
I, for one, am in that boat…
I’ve been using my Android-based phone with Sprint since March 2011 and I’m due in for an upgrade a couple of months. Let me tell you, I actually considered upgrading my phone early for a fee. But truth be told, I’m not what you’d call a “fanboy”; so it wasn’t worth it to me. I already have a MacBook Pro and iPod and know basically what I’d be getting; and was willing to wait.
Additionally, there are a number of customers out there nearing the end of their two-year contract, just as I am, that would love to be a part of the Apple experience. If they buy the iPhone 5, or the next product in the cycle, it doesn’t matter… it’s more sales and more revenue.
Finally, T-Mobile will start carrying the iPhone later this year.
That’s another roughly 10% of US cell phone users who will now have access to the Apple experience. And the same will apply for T-Mobile users who recently locked into contracts with their current phones… they’ll have to wait two years before they can get an iPhone.
Speaking from experience, once you’re in the Apple ecosystem, everything else is just a hassle and inferior.
As always, the facts will be revealed on January 23rd. I’d be willing to bet we’ll not only see a huge beat after the recent earnings downgrades… but we’ll hear all about what’s in store for the coming quarters.
Keeping You One Step Ahead,