Forget the iPhone 5, the 4S Has Enough Excitement to Grow Market Share

Apple (NASDAQ:AAPL) unveiled its new iPhone 4S, which we believe has enough of the key features iPhone watchers were looking for to remain attractive enough to drive upgrades, bring in new iPhone users and fend off competition from Google (NASDAQ:GOOG) Android based smartphones, Research in Motion (NASDAQ:RIMM) and Nokia (NYSE:NOK).  Although the iPhone 4S looks physically similar to the iPhone 4 and stops short of any major external redesigns, the better speeds and new features should generate enough excitement to drive sales.

We are quite optimistic about the iPhone line up overall, and the introduction of the 4S allows Apple to cut the prices for past devices and thus bring some more cost conscious users to the iPhone family.

We continue to believe that the iPhone will remain the most valuable business for Apple as it accounts for more than 50% of our $510 price estimate for Apple stock, which is about 30% above market price.

See our complete analysis for Apple stock here

iPhone 4S Has Many Improvements

One of the most attractive features in the iPhone 4S is a voice recognition system called Siri for dialing telephone calls and making web searches.

Additionally, the 4S boasts of new features like a faster A5 dual core processor, better battery life and an improved camera with 1,080 pixels resolution for high definition video. The iPhone 4S will be a world phone that can switch between different network standards, both CDMA and GSM, and will be available through all three major U.S. carriers as well as through Apple itself.

Market Share Gains in Sight

On the software front, Apple introduced iOS version 5 in iPhone 4S, which has various new features and services such as Twitter integration and iMessage instant messenger service. It will also have iCloud service integrated, which we believe has the potential to become a new model of media consumption that could influence demand for Apple devices (see iCloud: Fortifying Apple’s Moat in Mobile).

We believe, in contrast to many others, that the Apple has introduced enough important features in iPhone 4S for it to continue to gain market share in the mobile phone market. Given no real challenger to the iPhone’s dominance right now, this provides enough allure to bring in new users. At the same time, the lower prices for the older versions will help reach the aspirational iPhone users that are more budget constrained. Having a cheaper phone in its core markets also makes it easy to roll these out for emerging markets at some point in the future, which would speed up the global smartphone penetration where this ample room to improve its standing.

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