In a short while, Apple Inc. (NASDAQ:AAPL) will hold a press event, where it is widely expected to announce two new iPhones: 5S and 5C. The event has generated huge interest from investors, resulting in a rallying of shares for the iPhone maker. However, analyst Glen Yeung from Citi Research feels that the success of the new iPhones are questionable on many fronts, suggesting the recent rally in shares may be temporary in nature.

Apple AAPL

 Pricing issue continues

According to Gartner, market for cellular handsets above $300 was 13.7 percent in 2012. This stat already limits Apple’s new offering as analysts have modeled the iPhone 5C at $450. However, the iPhone 5C may be subsidized by operators, but to do that they will have to shell out a significant $350/phone, which may adversely impact them, considering the falling average selling prices for the smartphones.  Apple

Also, if Apple Inc. (NASDAQ:AAPL) plans to sell iPhone 5C for $299, then according to analysts, gross margins for the company may fall to 20 percent. Also, better offerings from rivals at a lower price, like Xiaomi’s Mi3, may further aggravate the problems for Apple.

Apple

Apple needs new carriers

Analysts expect that Apple Inc. (NASDAQ:AAPL) will form an alliance with China Mobile and NTT DoCoMo. In the most optimistic scenario, both of these carriers can contribute around $11 to EPS, or 26 percent.

 However, analysts feel that sales to China Mobile may not be that fruitful, as Apple already sells significant units to the carrier, “and given their falling share in China in general (down to ~5% in 2Q13), their share in CM without subsidy is equal to their share at the other 2 carriers with subsidy.”

Lack of innovation

Analysts do not find both the iPhone5S and 5C features to be innovative. This further fuels the concerns surrounding a lack of innovation facing the smartphone industry. However, the new fingerprint reader may encourage users to support more mobile payments, but Citi views mobile payment schemes as being “too fragmented with too little buy-in from relevant parties to represent a meaningful driver at this time.”

Cannibalization can’t be ignored

Based on Apple Inc. (NASDAQ:AAPL)’s product line-up, the company “found success” with the iPhone 4, but some of that has come at the expense of the iPhone 5. Basing their analysis on this precedence, analyst expects some risk of cannibalization. As per the analysis, for every 5 percent “move in mix away” from Phone5S and toward 5C, the blended average selling price (ASP) will be affected by 1.8 percent, revenues will be cannibalized 1.7 percent, and gross margins may get impacted by 315 bps while EPS by 2.1 percent.