Bull Vs. Bear - iPhone 5 Will Keep Apple Ahead Of The Pack

By Will Ashworth | September 18, 2012 AAA

Question: With its competitors offering similar smartphone products at a cheaper price, will Apple fall behind the competition?

Bull's Response
The reviews are in - Apple's (Nasdaq:AAPL) iPhone 5 is a winner with both consumers and critics alike. While there will always be detractors who see the negative in any situation, the iPhone 5's successful launch and pre-sale activity is proof the company is moving on, despite the late Steve Jobs being absent for its latest development. In fact, the Apple culture appears alive and well in Cupertino. Shareholders can breathe easier - Apple still has its technology mojo going on.

Discount Brokers Comparison: Your one-stop shop for finding the perfect broker for your investments.

Apple's Strength
You can make the argument that Samsung and Android have the jump on Apple when it comes to providing technology at a reasonable price. That said, you would never convince me or the millions of Apple's avid users that another tech company does as good a job listening to its customers and implementing changes based on simply observing the marketplace. Take near-field communication. Apple didn't include the technology in its phone opting for an aluminum-and-glass body that prevents the transmission of radio waves to point-of-sale terminals.

Appearing to choose form over function, the reality is that it wasn't prepared to add NFC technology to the iPhone 5 because it understands how fragile the mobile payments market is and didn't want to expose its customers to the inevitable problems of an immature technology. Or maybe it's just that they know to read. A recent survey of 1,200 U.S. consumers - 840 of whom own smartphones - found that 68% of those surveyed still prefer cash and credit cards to mobile wallets. The old saying,"less is better," definitely applies here. Apple's understanding of technology gave it the wisdom to just say no.

SEE: 3 Ways To Indirectly Invest In Apple

A Jolt to the Economy
Although I use Apple products and generally enjoy them, I'm not a fan of the company itself. Between offshoring, excessive CEO compensation and its incessant whining about how much tax it will have to pay on repatriating overseas cash, it's definitely not the poster child for a better America. It's ironic then that the iPhone 5's sales will, in the words of former Federal Reserve Board Governor Kevin Warsh, "... do more for the real economy than QE3."

According to JP Morgan Chase (NYSE:JPM), the iPhone 5 will increase the GDP by 0.3% on an annualized basis. RBC Capital Markets analyst Amit Daryanani told clients September 13 that this will be Apple's fastest-selling smartphone ever and could see 60 million units sold by the end of the year. Sure, the competition is doing a better job keeping up with Apple these days, but at the end of the day, no one presents all the smartphone bells and whistles as enticingly as Apple does. The brand's growing number of loyalists will only keep the recurring revenue rolling.

China
Here's where Apple has the potential to hit a real home run. Currently, it has 38% market share in China for phones costing more than $473, compared to 59% for Android. Its share of the market's been slipping because its previous versions of the iPhone were incompatible with China Mobile's 3G and 4G networks. China Mobile has as many as 600 million 2G users and holds 70% of the overall Chinese market for mobile phone subscribers. Apple's effectively blocked from converting this massive audience until it provides China Mobile with a phone that is compatible. Nomura analyst Danny Chu says that's not happening anytime soon. Besides, it appears Chinese consumers aren't all that excited about buying the latest incarnation of the iPhone.

Sina.com conducted a survey that suggests only slightly more than a quarter of those surveyed would definitely get one and another quarter are going to wait and see. With primarily good reviews so far, you can bet that number is going to rise. For now, I wouldn't count on China Mobile for a boost in sales, which is just fine because it's busy enough already. Instead, I'd expect an announcement of a deal in early 2013, once sales in the U.S. and other markets have tailed off slightly. I might not like Apple's corporate ethos but it definitely knows how to keep the ball rolling forward and that's the key to success in the electronics business.

SEE: A Primer On Investing In The Tech Industry

The Bottom Line
In addition to the iPhone 5, Apple has a new iPod lineup coming out later this year along with a smaller iPad, new iMacs and an updated regular-sized iPad. Then in 2013, we might even see Apple's own HDTV.

At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.

Don't forget to read the Bear Side of this debate and weigh in with your opinion below.

comments powered by Disqus
Related Analysis
  1. Market Watchers Get a Breather - Ahead of Wall Street
    Stock Analysis

    Market Watchers Get a Breather - Ahead of Wall Street

  2. Still More Gains Ahead For Semiconductor Makers
    Stock Analysis

    Still More Gains Ahead For Semiconductor Makers

  3. The Days of BABA Are Upon Us - Ahead of Wall Street
    Stock Analysis

    The Days of BABA Are Upon Us - Ahead of Wall Street

  4. JPMorgan Chase & Co., Other Financial Stocks Strong During Market Retreat
    Stock Analysis

    JPMorgan Chase & Co., Other Financial Stocks Strong During Market Retreat

  5. Tepid Market Waters Across the Globe - Ahead of Wall Street
    Stock Analysis

    Tepid Market Waters Across the Globe - Ahead of Wall Street

Trading Center