What effect will the iPhone 6 have on the Apple share price?
Apple is set to launch the latest version of its iPhone soon. Ed Bowsher looks at how it will affect the company’s share price, and whether you should buy in.
Apple will probably launch its latest phone, the iPhone 6, next month
There's plenty of speculation out there about what the new phone or possibly phones will offer. Will there be a sapphire display cover? Could the clock speed' rise to 2GHz? And many other such questions
But this techie stuff isn't that important.For me, the big question is whether the new phone will enable Apple (Nasdaq: AAPL) to carry on selling loads of highly-priced phones on very chunky margins.
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It looks like the most important change or certainly the most noticeable change, anyway will be the screen size. Currently, the iPhone 5s has a four-inch screen, which is a fair bit smaller than some of the rival phones from Samsung et al. Pretty much all the pundits are predicting a new 4.7-inch iPhone, which may also be accompanied by a larger 5.5-inch model. It's not clear whether a larger phone will be launched at the same time as the 4.7-inch phone or whether we'll have to wait a few months longer. Assuming a larger phone is on the agenda at all.
Either way, going for bigger screens is a smart move. I know that some of my friends have switched to Android for no other reason than they wanted a bigger screen. And that makes sense. Instead of lugging a phone and a tablet around the place, why not just go for a phone with a bigger screen?
No doubt we'll also see faster processing speeds and various other bells and whistles, some of which may even be quite useful.
Anyway, the point here is that bigger screens will be a real plus for Apple, and I strongly suspect that means Apple can defend its current market share in 2015. And it won't have to cut its margins either.
Looking further out to 2016 and beyond, I admit it's a much harder call. But for 2015, I think bigger screens will make a real difference.
I'm also impressed by Apple's 39% gross margin, which actually went up in the last quarter. That was a bit of a poke in the eye for all the people who said that Apple can't maintain its margins. What's more, the volume of iPhones sold has risen 13% over the last year at least partly due to the fact that China Mobile now sells iPhones.
Revenue from iTunes also rose 25% over the last year. That's a crucial point revenue is rising because more people are now part of the Apple ecosystem'. Once you've been an Apple user for three years and have bought loads of apps, music and so on, will you really want to defect to Android or some other system?
And then there's the great unknown. Can Apple launch a new product type that will genuinely revolutionise that market? This might be a watch or TV-based product. My hunch is that Apple won't ever again launch a product that will make the impact of an iPhone or iPad. But if I'm wrong, Apple is a steal at its current $94 share price.
Downsides
Short-term
And as a longer-term investment, I don't see Apple as a must invest', but I think it's a better bet than many other companies out there. As I say, I doubt we'll see any margin erosion next year, and although that may see some slippage from 2016 onwards, I suspect the margins will remain stronger than many expect. The brand and the ecosystem are just too strong.
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Ed has been a private investor since the mid-90s and has worked as a financial journalist since 2000. He's been employed by several investment websites including Citywire, breakingviews and The Motley Fool, where he was UK editor.
Ed mainly invests in technology shares, pharmaceuticals and smaller companies. He's also a big fan of investment trusts.
Away from work, Ed is a keen theatre goer and loves all things Canadian.
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