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Stakes high as Apple releases iPhone 5

Adam Satariano San Francisco

Apple’s debut of its redesigned iPhone will test anew its high-stakes strategy of once-a-year upgrades for a product that accounts for about 70 percent of the company’s profits.

The iPhone 5, to be introduced today by chief executive Tim Cook, will probably have a new hardware design, including a bigger screen and thinner body, as well as new mapping software and compatibility with speedier next-generation data networks. Analysts predict the iPhone may be among the biggest consumer-electronics releases in history. Still, Apple’s reliance on the device leaves Cook little margin for error.

“The iPhone is the make-or-break product for Apple,” said analyst Sarah Rotman Epps at Forrester Research.

“Apple has the undeniable lead, but to stay on top they need to keep innovating.”

Apple could sell as many as 10 million iPhones this month alone, according to Piper Jaffray analyst Gene Munster. By contrast, Samsung took 50 days to sell 10 million of its flagship Galaxy S III smartphone.

“Until they do something really unimpressive, which I don’t see happening this time around, Apple has a serious hit on its hands,” said Ramon Llamas, an analyst at IDC.

Almost a year after the death of Apple co-founder Steve Jobs, the iPhone faces a growing army of competitors looking to grab a piece of a smartphone market that Bloomberg estimates was worth $219 billion (R1.8 trillion) last year.

Samsung, Google’s Motorola Mobility, Nokia and HTC are among those taking aim at Apple by introducing dozens of new devices each year, instead of just one.

The new iPhone 5 will be Apple’s first change to the handset’s hardware design since 2010, raising anticipation among customers who have been holding off on buying a new smartphone.

The company garnered 43 percent of its $108bn in sales last year from the iPhone. And because wireless carriers such as AT&T and Verizon Wireless subsidise the roughly $620 Apple gets for each iPhone sale, the device accounts for 70 percent of its profits, according to Sanford C Bernstein. iPhone sales last quarter alone reached $16bn, 33 percent higher than Google’s total sales and close to Microsoft’s $18bn.

Apple’s new iPhone could contribute half a percentage point to US economic growth in the fourth quarter, according to analysts at JPMorgan Chase.

Apple may sell up to 8 million iPhones in the US in the final three months of the year, boosting gross domestic product by $3bn, or $13bn on an annual rate, Michael Feroli, an economist at JPMorgan.

Feroli predicts the US economy will expand 2 percent in the fourth quarter, with the iPhone limiting “downside risk.” But his estimates should be “treated sceptically”, he said.

iPhone sales are also what investors watch the most closely. Apple’s shares fell in July after the company reported disappointing sales of the handset.

The shares have since recovered ahead of the iPhone 5 release, gaining 64 percent so far this year.

“A lot is riding on this,” said Chris Jones, an analyst at market research firm Canalys. “They have to make sure it’s as good as people expect.”

A big challenge for Apple may be making enough devices to keep up with demand. Shortages from screen makers may limit how many iPhones Apple can ship, according to Barclays.

And data demands of new iPhone users could put a strain on mobile data networks being introduced by wireless carriers.

Apple’s growing popularity in China and elsewhere outside the US, as well as its built-in fan base, would help make the new iPhone one of technology’s biggest debuts, said Canalys’s Jones. – Bloomberg

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