Quarter after quarter, Apple (Nasdaq:AAPL) has managed to outperform both earnings and expectations. This success has primarily been a function of its four major product lines: its computers, tablets, iPods and iPhones. The firm's iPhone is especially important to the company's profitability, contributing an estimated near two-thirds of Apple's profits. As a result, Apple's reliance on the iPhone as a profit-driver is far more extensive than most people are aware of.
A History of iPhone
On Jan. 9, 2007, Steve Jobs presented the first iPhone to the world. A computer, camera and iPod all in one, the iPhone 2G utterly shocked the world. At first, the market was torn between two camps: those who claimed that the iPhone would be a smashing success and those who maintained that the iPhone had fundamental issues that would hamper it from meeting its sales targets. Of course, it revolutionized the phone industry and helped Apple shatter its earnings estimates.
The iPhone 3G, or the second iPhone, was introduced on June 9, 2008, to even more fanfare. The new iPhone allowed third parties to create and sell mobile applications through the App Store, an important development that led to increased market share and profitability. In fact, Apple sold over 1 million iPhone 3Gs in the first three days of its release, a much faster pace than the iPhone 2G. Later, the iPhone 3GS was released, with minor system upgrades. Again, Apple had achieved massive success with its cellular product line.
Next came the iPhone 4: heralded as "the biggest leap since the original iPhone," the product's announcement on June 7, 2010, created an international frenzy. This iPhone was the thinnest phone to date with the ability to multitask - an improvement that greatly enhanced the capability of the operating system. In addition, the phone's sleek new design captured the imagination of millions. Like every model before it, the iPhone 4 dominated the cellular phone market from the day of its release, selling 1.7 million products in the first three days. Apple's iPhone 4S included a system upgrade and introduced Siri, an iPhone intelligent assistant.
Apple's most celebrated product launch to date, the iPhone 5 was exposed to the world on Sept. 12, 2012. The company's latest phone model is lighter, faster and bigger than ever before. Analysts from J.P. Morgan estimated that the iPhone 5 could contribute up to half a percentage point of annualized GDP to the U.S. economy. While the record-breaking initial sale total of 5 million units over the iPhone's first weekend of availability did not meet analyst projections of 6-10 million, Apple CEO Tim Cook attributed this disconnect to a supply-side failure to meet demand.
AAPL Stock and the iPhone
Not every iPhone launch has resulted in quick riches for Apple stockholders.
While initial consumer excitement often drives a brief upturn in the value of the security, whether or not sales of the product itself are successful and the company's bottom line have more powerful market influences. As Apple's keynotes tend to wow viewers, this phenomenon should be of no surprise.
The announcement of the iPhone 2G resulted in a brief 7% jump in Apple stock. However, a full week's time dampened this result.
Next, the release of the iPhone 3G again elicited a brief market high, that fell by week's end to down 2.63%.
The iPhone 4 launch actually resulted in an immediate dropoff in the price of Apple stock.
What's the point? The price of Apple stock is a function of the company's financial wellbeing in the long run, not whether or not the company misses or makes analyst earnings projections. A fixation on the short-term volatility of any stock is a dangerous game.
The Bottom Line
After all, selling the iPhone seems to have become indispensable to Apple. As sales of the device compromise a vast majority of the firm's revenues, the iPhone 5 is an incredibly important device. Another success will be sure to propel Apple stock to new heights. A swing-and-a-miss on any iPhone, however, would have disastrous ramifications for the company. Trade with care.
At the time of writing, James Kerin did not own any shares in any company mentioned in this article.