Apple iPhone 5: The Potential Winners
Apple’s big product launch in San Francisco this week, expected to mark the debut of the iPhone 5, could spell good news for a host of companies way beyond the boundaries of the tech giant’s campus in Cupertino, Calif.
From Apple itself to the company’s telecom partners and component makers, there's a whole host of firms set for an iPhone 5 boost.
Apple
Apple, obviously, is the biggest beneficiary of a new iPhone, and massive pent-up demand looks set to drive record sales of the device during the coming quarters.
“We anticipate that iPhone 5 will drive a significant product cycle and put a lot of pressure on competitors,” noted Shaw Wu, an analyst at Sterne Agee, in a recent note. “The previous update from iPhone 4 to iPhone 4S was arguably a relatively minor one, with Siri being the biggest new feature. Despite that, a record number of iPhones were sold.”
Wu said he expects Apple to sell a massive 45 million iPhones during the December quarter, well above its previous record of 37 million iPhones in the same quarter last year. “We believe this could turn out conservative, but believe a gating factor could be availability of new in-cell touchscreens,” added Wu.
There has been plenty of talk about in-cell touchscreens recently, with the thinner, lighter panel technology seen as a way for Apple to reduce the weight of its products. Last month, for example, Apple was awarded a patent for “liquid-crystal display (LCD) touch screens that integrate the touch sensing elements with the display circuitry.”
Overall, the probable new iPhone looks set to be an overwhelmingly positive catalyst for Apple’s performance.
“Our assumption is that the iPhone 5 will be revolutionary in terms of form factor and software, driving a major upgrade cycle over the next 12 to 18 months,” explained JPMorgan analyst Mark Moskowitz, in a note. Boosted by a new iPhone and the widely anticipated launch of an iPad mini sometime soon, the equity research firm recently hiked Apple’s December 2013 price target to $770 from $675. JPMorgan also raised it fiscal 2013 iPhone and iPad estimates from 147.4 million and 79.1 million to 167.9 million and 91.2 million, respectively.
“We think that the new iPhone 5 will not be hampered by chip and display-related supply chain shortages as previously anticipated,” noted Moskowitz.
Apple, of course, is also opting for an earlier launch of its latest iPhone hardware, compared to last year’s iPhone 4S announcement on Oct. 4. The additional weeks of sales, coupled with feverish anticipation from consumers, should significantly boost the gadget maker’s top and bottom lines during the coming months.
“Because of the sooner timing, we believe guidance for the September quarter ($34 billion in revenue and $7.65 in earnings per share), as well as consensus estimates, could turn out conservative," wrote Sterne Agee’s Wu.
Analysts surveyed by Yahoo Finance expect Apple to report revenue of $34.9 billion and earnings of $8.42 a share.
Key features of the new iPhone are expected to include a larger screen and 4G LTE capabilities, although Wu also expects advanced software features such as maps with turn-by-turn navigation and native integration with social networks including Facebook and Yelp.
Service Providers
It’s not just Apple, though, that stands to benefit from the comparatively early launch of the new iPhone 5.
“We are updating our estimates for AT&T, Verizon Communications, and Sprint Nextel to reflect the likelihood that Apple will launch the next iPhone this month (versus our prior expectation of a 10/1 launch),” explained Brett Feldman, an analyst at Deutsche Bank, in a recent note.
For all three telecommunications firms, Deutsche Bank increased its third-quarter iPhone unit sales forecasts. Nonetheless, Deutsche Bank lowered the companies’ wireless EBITDA and earnings per share estimates for the third quarter and 2012, as a result of the subsidies the carriers pay for the phones.
“However, these impacts are mostly a function of timing and we generally view an early launch as a positive development for these carriers,” added Feldman. “It should accelerate migration of their sub bases onto their new 4G/LTE networks and off of their congested 3G platforms.”
AT&T , which has the largest iPhone base, will see the biggest impact, according to Feldman, who raised his third-quarter iPhone estimate from 3.2 million units to 5.2 million units. For Verizon, the Deutsche Bank analyst hiked his iPhone estimate from 2.5 million to 3.5 million units. Sprint, which started selling the iPhone last October, should sell 1.7 million iPhones in the third quarter, according to the analyst, compared to his prior estimate of 1.5 million.
“We are also maintaining our fourth-quarter iPhone forecast of 2 million, as we believe that Sprint’s unique position as the only carrier offering an LTE iPhone with an unlimited data plan should enable it to sustain strong sales through year-end."
Component Suppliers
The “teardowns” that ritually follow major Apple product launches highlight a host of companies that have won coveted spots within the gadgets themselves.
Last year’s iPhone 4S launch, for example, revealed components from the likes of Skyworks Solutions, Qualcomm, and TriQuint Semiconductor lurking within the device.
Almost 12 months on, power amplifier specialist Skyworks , in particular, is attracting plenty of attention. “We believe Skyworks will largely benefit from the upcoming Apple iPhone 5 event,” noted Aalok Shah, an analyst at D.A. Davidson & Co., in a note. “Going into the event we anticipate Skyworks has expanded content in the new iPhone and likely won around $3 of content, versus our estimate of around $1.20 of content in the iPhone 4S.”
Skyworks had a power amplifier module in the iPhone 4S, and has become increasingly associated with the rise of Apple and Samsung, another of its key component partners.
“Considering the pent-up demand, we believe that if the next iPhone starts shipping around the 21st of September that Apple could sell around 8 to 10 million units before the end of the September quarter,” explained Shah. “Strong demand for the iPhone 5 will likely continue into the December quarter, boosting Skyworks cellular revenue by around $20 million.”
Skyworks shares have risen 84.4 percent this year.
Apple, of course, keeps details of its new products a closely guarded secret (except for when prototypes are left in bars), so we won’t know for definite what is in the new iPhone until websites such as ifixit.com start tearing it apart.
—By TheStreet.com’s James Rogers
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