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Apple Inc.
AAPL 1.74%
It’s the upsell master, but 5G could present the company its biggest challenge yet.
The tech giant has scheduled an event for October 13, when it is expected to unveil this year’s iPhone lineup. As is typical, the company has said nothing about its plans for what would be the 20th iteration of its iconic smartphone, not counting the large-screen variants of the same models. But leaks and vendor reports have confirmed that the next-generation 5G wireless standard will be included in at least some of this year’s designs, with Apple itself calling the event “Hello, Speed” in its announcement.
Almost all of the company’s competitors, including the largest Samsung, already have 5G phones on the market. But most of the global 5G action has taken place in China, which accounted for more than three-quarters of 5G device shipments in the second quarter, according to Counterpoint Research. In the US, 5G coverage is still limited, even in major cities. That has hampered adoption so far. IDC estimates that 4.2 million 5G smartphones were sold in the US in the first half of this year, about 7.5% of total domestic smartphone shipments in that time.
Apple is expected to push that forward. Counterpoint analyst Jeff Fieldhack predicts that this year’s new iPhones will dramatically increase the market share of 5G devices, resulting in such phones accounting for 20% of national smartphone sales by the end of the year. And several equity analysts have begun to re-implement the term “supercycle” used to predict strong iPhone cycles in the past, although not always accurately. Analysts project total iPhone unit sales to rise 10% in Apple’s current fiscal year ending next September, following two consecutive years of declines, according to consensus estimates from Visible Alpha.
That, in turn, has boosted Apple shares, which are up 59% so far this year even after falling back from their September 1 high. At more than 31 times future earnings, the stock remains in its most expensive valuation range in more than a decade.
Is a 5G iPhone worth it? Probably not, if that’s the only selling point. Past comparisons are problematic. The last major network transition to the current standard known as LTE took place in the 2010-12 time period, when smartphones were still a fast growing business globally. Apple’s first LTE device was the iPhone 5, which was launched in late 2012. That device also sparked “supercycle” projections, although the phone’s sales and lower profit margins did not live up to expectations. Apple’s stock price had risen 65% that year prior to the iPhone 5 launch, and then fell 24% in the rest of the year.
Smartphone buyers tend to be more motivated by improved features like screen size, better cameras, and longer battery life. The iPhone 6 cycle that began in late 2014 turned out to be Apple’s best, thanks to the significant increase in screen size that device provided. And last year’s iPhone 11 Pro models with their triple-lens cameras turned out to be more popular than expected. Analysts believe those models accounted for 28% of Apple’s total iPhone sales volume for the fiscal year that ended in September, compared to 23% for high-end iPhone models the previous year, according to Visible Alpha.
The success of last year’s iPhones is actually another challenge for this year, as smartphone buyers now tend to keep their devices for three to four years. Apple still has a strong fan base willing to line up for whatever the company presents each year. Obtaining enough to justify a market value of $ 2 trillion will be a difficult task.
Write to Dan Gallagher at [email protected]
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