Wall Street response to iPhone 4S muted, but optimistic
Following Apple's unveiling of the iPhone 4S on Tuesday, Wall Street's response was relatively subdued, though analysts remain optimistic that Apple sales growth will continue to rise.
Apple took the wraps off the iPhone 4S at its "Let's Talk iPhone" event. The fifth-generation handset is a "world phone" that carries the same external form factor as the iPhone 4, but boasts a faster processor, improved antenna design and new Siri voice recognition functionality.
Shares of Apple experienced volatility on Tuesday in light of Apple's announcements. The stock slide from a close of $374.60 on Monday to as low as $355.18 during the day on Tuesday, before rallying back to close at $372.50, down just 0.56 percent.
The general response by the public appears to be largely underwhelmed. But, several Wall Street analysts noted the disappointment, while also reiterating their confidence in Apple's continued growth.
Piper Jaffray
Piper Jaffray analyst Gene Munster sent a note to investors saying that Apple's announcements at its "Let's Talk iPhone" event were in line with expectations.
"The bottom line is that while investors may be disappointed by the lack of a redesigned iPhone, we believe the iPhone 4S will meet or exceed unit expectations, as it represents the first iPhone launch at two major US carriers (Verizon and Sprint) along with KDDI in Japan," he wrote.
Munster believes the launch of the device will attract long lines, based on survey data from August. According to him, there is pent up demand for the iPhone 4S, as 64 percent of mobile phone users surveyed in August indicated plans to buy an iPhone the next time they purchase a new phone, with 36 percent of those surveyed saying they would wait for the "iPhone 5." But, it should be noted that the survey had a small sample size of just 216 respondents.
Verizon and Sprint are expected to give Apple a sales boost, even without a redesign of the iPhone's externals. Munster remains comfortable with his 25 million unit estimate, given the level of demand expected from the two carriers. According to him, Sprint should have the highest backlog of demand, though large numbers of Verizon customers who passed on the iPhone 4 and have been waiting for a next-generation Apple handset are also predicted to buy the iPhone 4S.
74 percent of Verizon subscribers who do not have an iPhone but plan to buy one as their next mobile phone were waiting specifically for the fifth-generation model, compared to 53 percent of AT&T subscribers, Munster noted.
RBC
Analyst Mike Abramsky said Tuesday that a drop in Apple's stock price was "not unexpected" because the announcements only met expectations. He remarked that updates in the iPhone 4S and iOS 5 are "largely evolutionary," though he did note that the Siri voice assistant was "cool."
The analyst recommends investors buy shares of Apple on weakness, as he remains positive on Apple in the longer-term.
"Similar to the iPhone 3GS (which was evolutionary vs. the iPhone 3G), we believe investors should not underestimate the potential upgrade cycle of the iPhone 4S," he said, adding that RBC survey data shows "unprecedented" demand for the iPhone 4S.
Abramksy sees iCloud and iOS 5 as important differentiators that will help lock users into the Apple ecosystem. Also, the addition of Sprint as an Apple carrier partner will expand the iPhone's addressable market by 25 percent in the U.S.
He pointed out that the new $0 iPhone 3GS will psychologically provide a "compelling offer" to consumers, potential doubling Apple's addressable market to 150 million smartphones per year.
On page 2 of 2: J.P. Morgan, UBS and Morgan Stanley.
J.P. Morgan
Mark Moskowitz called the lack of a new "iPhone 5" a near-term disappointment, as he had expected Apple to release two devices on Tuesday. However, he did note that he views the "feature set improvements in the iPhone 4S and the broader pricing strategy as positives."
Given the upgrades of the iPhone 4S in combination with iOS 5 and iCloud, Moskowitz says the iPhone 4S is "elevated?above the rest of the pack."
The analyst disagreed with Abramsky's depiction, calling it "more than evolutionary." He highlighted the new A5 dual-core CPU with a 7x improvement in graphics performance, as well as the new "world-mode" functionality, improved battery life, and double the download speeds of the current iPhone 4.
Moskowitz views Apple's faster time-to-market and midrange pricing as driving sales of the iPhone. "The new 4S is slated for pre-orders starting October 7 in six countries and then expected to reach 22 more countries on October 28. By the end of 2011, Apple expects distribution in 70 countries and through 100 carriers," he said.
Apple's pricing now extends from a free iPhone 3GS with a two-year contract to $399 for the 64GB iPhone 4S. According to Moskowitz, Apple's strategy to "cover the spectrum of smartphone price points" should set up the company to make gains in emerging markets, including China.
The analyst is a believer in Siri as providing significant added value to the iPhone platform. "Once investors dig into Siri, we think its addition will overshadow the lack of full iPhone form factor change," he said.
"We think Siri can be viewed as Apple?s initial play into artificial intelligence. The capabilities featured are not equivalent to IBM?s Watson, but without too much imagination, Apple?s Siri + iCloud appears to have significant headroom in terms of technical capabilities," Moskowitz wrote.
UBS
UBS analyst Maynard Um believes Apple has once again "proven its ability to innovate" with Siri, comparing the voice recognition technology to Apple's introduction of multi-touch interfance with the original iPhone. He does note that some will be disappointed by the unchanged design of the iPhone 4S, but he sees Siri, iCloud and other iOS 5 features as driving the next wave of demand.
Like Moskowitz, he views an accelerated country launch and lower-priced iPhone models as instrumental to Apple's handset sales. The firm predicts Apple will sell 25 million iPhones in the first quarter of fiscal 2012, with strong possibility for upside that could bring in $0.02 in earnings per share per incremental 100,000 iPhones sold.
Morgan Stanley
Katy Huberty said in a note to clients that Apple had failed to meet high investor expectations with its announcements Tuesday. But, she pointed out that the market "tends to forget that software is what differentiates Apple from the competition." According to her, Apple's efforts with iOS 5, Siri and iCloud continue that fact.
iPhone estimates look "very conservative" in light of past product cycles, Huberty said. Momentum in China, new carriers and the potential for more new phones next year. Morgan Stanley telecom analyst Simon Flannery estimates an incremental one million iPhone per quarter demand from Apple's new relationship with Sprint in the December quarter and 2012.
Huberty's checks with the supply chain indicate that Apple may see improved margins with the iPhone 4S because of "significant component price cuts over the past six month, to the tune of 10-20%." Also, limited hardware design changes to the iPhone 4S should contribute to better gross margins earlier in the product cycle, she said.
The analyst continued to assert that surging demand in China will drive Apple's momentum, pointing to record traffic and revenue ramps for the iPhone maker at its new Shanghai and Hong Kong stores. Apple saw more than 600 percent growth year over year in the Greater China region last quarter, reaching $3.8 billion in revenue.
Apple took the wraps off the iPhone 4S at its "Let's Talk iPhone" event. The fifth-generation handset is a "world phone" that carries the same external form factor as the iPhone 4, but boasts a faster processor, improved antenna design and new Siri voice recognition functionality.
Shares of Apple experienced volatility on Tuesday in light of Apple's announcements. The stock slide from a close of $374.60 on Monday to as low as $355.18 during the day on Tuesday, before rallying back to close at $372.50, down just 0.56 percent.
The general response by the public appears to be largely underwhelmed. But, several Wall Street analysts noted the disappointment, while also reiterating their confidence in Apple's continued growth.
Piper Jaffray
Piper Jaffray analyst Gene Munster sent a note to investors saying that Apple's announcements at its "Let's Talk iPhone" event were in line with expectations.
"The bottom line is that while investors may be disappointed by the lack of a redesigned iPhone, we believe the iPhone 4S will meet or exceed unit expectations, as it represents the first iPhone launch at two major US carriers (Verizon and Sprint) along with KDDI in Japan," he wrote.
Munster believes the launch of the device will attract long lines, based on survey data from August. According to him, there is pent up demand for the iPhone 4S, as 64 percent of mobile phone users surveyed in August indicated plans to buy an iPhone the next time they purchase a new phone, with 36 percent of those surveyed saying they would wait for the "iPhone 5." But, it should be noted that the survey had a small sample size of just 216 respondents.
Verizon and Sprint are expected to give Apple a sales boost, even without a redesign of the iPhone's externals. Munster remains comfortable with his 25 million unit estimate, given the level of demand expected from the two carriers. According to him, Sprint should have the highest backlog of demand, though large numbers of Verizon customers who passed on the iPhone 4 and have been waiting for a next-generation Apple handset are also predicted to buy the iPhone 4S.
74 percent of Verizon subscribers who do not have an iPhone but plan to buy one as their next mobile phone were waiting specifically for the fifth-generation model, compared to 53 percent of AT&T subscribers, Munster noted.
RBC
Analyst Mike Abramsky said Tuesday that a drop in Apple's stock price was "not unexpected" because the announcements only met expectations. He remarked that updates in the iPhone 4S and iOS 5 are "largely evolutionary," though he did note that the Siri voice assistant was "cool."
The analyst recommends investors buy shares of Apple on weakness, as he remains positive on Apple in the longer-term.
"Similar to the iPhone 3GS (which was evolutionary vs. the iPhone 3G), we believe investors should not underestimate the potential upgrade cycle of the iPhone 4S," he said, adding that RBC survey data shows "unprecedented" demand for the iPhone 4S.
Abramksy sees iCloud and iOS 5 as important differentiators that will help lock users into the Apple ecosystem. Also, the addition of Sprint as an Apple carrier partner will expand the iPhone's addressable market by 25 percent in the U.S.
He pointed out that the new $0 iPhone 3GS will psychologically provide a "compelling offer" to consumers, potential doubling Apple's addressable market to 150 million smartphones per year.
On page 2 of 2: J.P. Morgan, UBS and Morgan Stanley.
J.P. Morgan
Mark Moskowitz called the lack of a new "iPhone 5" a near-term disappointment, as he had expected Apple to release two devices on Tuesday. However, he did note that he views the "feature set improvements in the iPhone 4S and the broader pricing strategy as positives."
Given the upgrades of the iPhone 4S in combination with iOS 5 and iCloud, Moskowitz says the iPhone 4S is "elevated?above the rest of the pack."
The analyst disagreed with Abramsky's depiction, calling it "more than evolutionary." He highlighted the new A5 dual-core CPU with a 7x improvement in graphics performance, as well as the new "world-mode" functionality, improved battery life, and double the download speeds of the current iPhone 4.
Moskowitz views Apple's faster time-to-market and midrange pricing as driving sales of the iPhone. "The new 4S is slated for pre-orders starting October 7 in six countries and then expected to reach 22 more countries on October 28. By the end of 2011, Apple expects distribution in 70 countries and through 100 carriers," he said.
Apple's pricing now extends from a free iPhone 3GS with a two-year contract to $399 for the 64GB iPhone 4S. According to Moskowitz, Apple's strategy to "cover the spectrum of smartphone price points" should set up the company to make gains in emerging markets, including China.
The analyst is a believer in Siri as providing significant added value to the iPhone platform. "Once investors dig into Siri, we think its addition will overshadow the lack of full iPhone form factor change," he said.
"We think Siri can be viewed as Apple?s initial play into artificial intelligence. The capabilities featured are not equivalent to IBM?s Watson, but without too much imagination, Apple?s Siri + iCloud appears to have significant headroom in terms of technical capabilities," Moskowitz wrote.
UBS
UBS analyst Maynard Um believes Apple has once again "proven its ability to innovate" with Siri, comparing the voice recognition technology to Apple's introduction of multi-touch interfance with the original iPhone. He does note that some will be disappointed by the unchanged design of the iPhone 4S, but he sees Siri, iCloud and other iOS 5 features as driving the next wave of demand.
Like Moskowitz, he views an accelerated country launch and lower-priced iPhone models as instrumental to Apple's handset sales. The firm predicts Apple will sell 25 million iPhones in the first quarter of fiscal 2012, with strong possibility for upside that could bring in $0.02 in earnings per share per incremental 100,000 iPhones sold.
Morgan Stanley
Katy Huberty said in a note to clients that Apple had failed to meet high investor expectations with its announcements Tuesday. But, she pointed out that the market "tends to forget that software is what differentiates Apple from the competition." According to her, Apple's efforts with iOS 5, Siri and iCloud continue that fact.
iPhone estimates look "very conservative" in light of past product cycles, Huberty said. Momentum in China, new carriers and the potential for more new phones next year. Morgan Stanley telecom analyst Simon Flannery estimates an incremental one million iPhone per quarter demand from Apple's new relationship with Sprint in the December quarter and 2012.
Huberty's checks with the supply chain indicate that Apple may see improved margins with the iPhone 4S because of "significant component price cuts over the past six month, to the tune of 10-20%." Also, limited hardware design changes to the iPhone 4S should contribute to better gross margins earlier in the product cycle, she said.
The analyst continued to assert that surging demand in China will drive Apple's momentum, pointing to record traffic and revenue ramps for the iPhone maker at its new Shanghai and Hong Kong stores. Apple saw more than 600 percent growth year over year in the Greater China region last quarter, reaching $3.8 billion in revenue.
Comments
After the iPad was announced, which as we all know turned out to be a horrible failure, Apple stock dropped 4 % the day after the announcement and then it dropped 7 % after that.
It only took 16 months to figure out how to fit an A5 in the iphone 4!!
AHAHAHAHAHAHAHAHA!!!!
Truly though. With or without a redesign, the internals and software would have been identical, and that is what drives these product. iOS 5, iCloud, and the A5 processor are a match made in heaven, and the experience of owning and using a 4S is going to be the same as a mythical 5.
And Siri wins the day as being better than a 4" iPhone.
You just can't be so arrogant to your fans...
What the hell were they doing for 16 months? A5 existed since iPad-2 launch, casing is the same, same old dwarf screen...
So 16 months to add a fifth lens to the optical system? REALLY???
OMFG!!!!!! New iPhone! It's still the same old sh__, but it's a little faster! Are you going to wait in line for one? Hey, maybe we can camp out together! I'll bring a Thermos of instant capuccino! We can burn our current iPhone 4 contracts for warmth!!
It only took 16 months to figure out how to fit an A5 in the iphone 4!!
Why do you have such a problem with the iPhone 4S... you don't seem to mind dragging out the same old shit every day... and you're not even a little faster.
Hmmm. Wall Street and its attitude. Wall Street speculators. Hmm. Who really gives a hoot what Wall Street thinks. What the People think matters more. Oh and thats right what Apple thinks makes a big diff when it comes to my Apple Products. Apple + Liberal Arts + Technology = $$. We buy Apple stock increases and the other guys still don't get it. And yes APL is part of wall street but thats all. Steve and Tim really don't care what Wall Street thinks. They care about the investors and the people buying the product.
I'm sorry, what does this have to do with liberal arts?
I doubt that many iPhone users really use their devices in such a way that they will benefit from the faster CPU and GPU performance. The new software is great but 3GS and iPhone 4 customers will get most of the benefits anyway for free. So we're really left with improvements to the antenna system and camera, and a 64GB storage option at the same time Apple is trying to move people away from relying on local storage for their content.
I've seen many existing iPhone users today admit they were disappointed, underwhelmed by the announcements but they will buy the new iPhone 4S anyway.
This is the beauty of the Apple cult. Customers may be disappointed largely by a new product announcement, but they will still go out and queue in line to be among the first to buy that shiny new toy with the Apple logo.
It's not hard to agree with general analyst view that this upgrade isn't very impressive. But Apple will probably still sell these new iPhones to record numbers, and that's really all Wall Street is interested in hearing.
I think todays announcement was really not about new hardware, but was more about getting more people into Apple iOS ecosystem.
- You have a faster iPhone, better video, better picture capability and you will be pushing this on their iCloud and their ecosystem.
- They lowered the price to get more emerging country customer onboard (as they don't have subsidized telco model as we do in US)
- The phone is now a world phone - The manufacturing cost is controlled - bigger margin for Apple
- Introducing cheaper iPhone and new iPhone 5 would cannibalize each other - Not good for Apple
- Adding Sprint is sucking in more onto Apple ecosystem.
- Current global economy situation can do without a another expensive phone.
At end of the day, I think this was very good tactical move by Apple.
The rumors of a larger screen never made a lot of sense to me. What are they going to do, lower the DPI or add a new screen size for developers to support?
Here's my theory as to what happened today... Apple needed to get off it's once a year iPhone upgrade event cycle. Technology and marketing by the competition moves too fast to wait a year to get back in the limelight. So spread out two events per year. You can't keep the June event because that means the other event would be too close to Christmas. So Spring and Fall it is. Earlier this year they had the release of the Verizon iPhone (sorry, no Spring event for the rest of the world). Then bite the bullet and hold out until Fall, skipping June.
LTE isn't quite ready yet, so let's get something new in the pipeline for the Holiday Season. This means cheap options (free 3GS, cheap 4, etc) for gift giving and the 4S because the 4 was getting too outdated and in need of an upgrade. Then in the Spring release the "power user's" iPhone 5 (iPhone Pro?). Bigger screen and LTE. I see this trend continuing for the next several years. Smaller screen phone for the Fall/Holiday release and the power user phone in the Spring. This also helps spread out the huge production backlog associated with one massive launch event each year. Two launch events can help smooth out the production and supply chain strain that comes every July/August after the June iPhone announcements.
Apple needs to diversify their offerings. The current one-size-fits-all model they've following up until now is self-limiting. Eventually they need to branch out and offer more choices. Anyone who wants a bigger screen won't even consider an iPhone today. And those same people are probably willing to pay a nice little premium to get one from Apple.
Strange thinking by some. So it's called and iPhone 4S, not an iPhone 5. Who cares what the name is? The outside looks the same as the best selling smart phone ever, the inside is a full redesign. Twice as fast, double the max ram, unified AT&T/Verizon/Sprint into a single model, better antenna, better camera, 1080p video, image stabilization, face detection, Siri, etc.
The rumors of a larger screen never made a lot of sense to me. What are they going to do, lower the DPI or add a new screen size for developers to support?
Clearly you've been sold on the marketing.
This is the first time I felt that I will skip an iPhone. I am still not sure.
Apple has 71 billion in the bank but they still complain. This is why I hate the idea of publicly traded companies. No matter how much you make Wall Street still wants more!!!!
I'm convinced Siri is a gimmick the vast majority of people will never use with any regularity, if at all.
I doubt that many iPhone users really use their devices in such a way that they will benefit from the faster CPU and GPU performance. The new software is great but 3GS and iPhone 4 customers will get most of the benefits anyway for free. So we're really left with improvements to the antenna system and camera, and a 64GB storage option at the same time Apple is trying to move people away from relying on local storage for their content.
64GB needed for all that 1080p video and camera pics will go fast. I bet that is a battery hog based on the prior iPhone's camera useage.
Colour me disappointed too. I was looking to replace my 3GS. The iPhone 4 is really cool, but an extended wait for the new iteration with the same externals is disappointing. Of course, talking about how there are 2 antennas outside etc. are just scemantics. Not taking away anything inside the new model - it is all impressive. But iCloud is not that useful for me and I don't know how often I will use Siri after the initial enthusiasm wears off. With a 64GB iPad and maybe another 64GB if I buy the new iPhone, there isn't enough space on iCloud to back up by stuff.
This is the first time I felt that I will skip an iPhone. I am still not sure.
Sounds like you are in a similar position to me. I'm also still a 3GS user and still very satisfied with my ageing device. I think I was secretly hoping for Apple to disappoint today so I wouldn't get suckered into buying another device I don't need. And they certainly delivered in underwhelming me. The camera is probably the biggest improvement for me. It's significantly better than the technology in the 3GS. But blowing hundreds of dollars on an iPhone 4S for the camera doesn't make sense, when that money could buy me a much better dedicated camera for the occasional HQ pictures I want to take.
The fact Apple is going to continue selling the 3GS for another year and support it with updates is what probably swings it for me.
It certainly won't stop me replacing my iPhone 3GS, it's a great upgrade just one that should have been released months ago.