Apple (NASDAQ:AAPL) has sett the stage for the widely anticipated launch of iPhone 5. The iPhone is the most valuable business for Apple and accounts for over 50% of our $510 price estimate for Apple stock. Hence tomorrow’s announcement could be an important mover for the stock. We are quite optimistic on the prospects for iPhone 5, its key new features and a potential cheaper handset targeted toward lower income countries. This optimism underlies our bullish price estimate for Apple stock, which is about 25% above market price. However we acknowledge that if the iPhone 5 fails to reveal new features that impress Apple followers as one WSJ article today highlights, this could weigh on the stock as fears of product fatigue take root.
See our complete analysis for Apple stock here
Apple has been on losing market share against Google (NASDAQ:GOOG) Android smartphone devices, and according to a Nielsen report, 43% of all U.S. smartphone owners have a Android phone while 28% of them own an iPhone. ((In U.S. Market, New Smartphone Buyers Increasingly Embracing Android, NielsenWire, September 26th, 2011)) More interestingly, this gap has increased over the last 3 months with 56% of smartphone users picking Android phones over just 28% for Apple. Hence the iPhone 5 is a crucial release for Apple.
iPhone 5 Features Will be the Key
We believe that the new iPhone could have a faster A5 processor, improved camera, improved graphics performance, faster network technology and potentially be thinner and lighter. We also expect additional feature announcements related to the upcoming iOS 5 update and Apple’s iCloud service. These features will help define the course of the market share gain that we can expect Apple to achieve over the next couple of years.
We note that Apple is coming out with the iPhone refresh after a gap of about 16 months following the iPhone 4 launch that happened in June 2010. 16 months is a long time in the technology world and hence iPhone 5 features updates will hold importance to Apple stock than ever. We expect quite a bit of volatility for Apple stock around October 4th announcement.
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