Apple Inc. (NASDAQ:AAPL)’s newly launched iPhones were more successful than expected, and without witnessing a decline in its margins to achieve the success, according to SIG analysts Chris Caso and Liz Pate. The analysts stated that Apple shares look strong ahead of the iPhone 6 cycles as iPhone 5S demand has surged well, so the risk of downside is negligible.
Apple looks strong before the next iPhone cycle
The analysts at SIG note that a risk for Apple Inc. (NASDAQ:AAPL) going forward is that the demand for the phone comes down after being launched, and yet this risk is one the analysts are willing to take “since we would be buyers of any weakness ahead of next year’s iPhone 6 cycle.”
The analysts are expecting an enhanced production cycle during the iPhone 6 release next year, based on the expectation that the new cycle will be better as iPhone 6 will be a more refreshed version of iPhone. Among the most significant features of iPhone 6 will be a large screen size, which will lure iPhone users to upgrade their devices. Apple Inc. (NASDAQ:AAPL) is believed to be asking its supply partners to start the manufacturing for iPhone 6 a quarter before, which could give way to a June/July product launch. In 2014, the Street is expecting revenue growth of 9 percent. Apple has sold 228 million iPhones in 2011 and 2012, which can be seen as the potential user base that can switch to the new iPhone.
Less aggressive launches by Samsung and other manufacturers has reduced the chances of users shifting from iOS to Android. Further, iOS7 was well received, indicating that Apple Inc. (NASDAQ:AAPL) will expand to a wider user base.
Apple may have to up production
Current shortfalls in supply provide a strong backlog for the fourth quarter, and it may increase further as China mobile is expected to join in the coming months.
Apple Inc. (NASDAQ:AAPL)’s supply chain production forecast reveals 31 million iPhones produced in the third quarter and 51 million units produced in the fourth quarter, which is in line with expectations. Analysts are not definite about demand in fourth quarter, but the current demand and short supply suggest that it will be in line with previous expectations, and Apple may have to up production in the fourth quarter.
Apple Inc. (NASDAQ:AAPL) derived considerable benefit from the worldwide launch of iPhone 5S and 5C compared to a limited launch of iPhones last season. However, there might be a risk of fading interests after the phone is purchased by the early adopters. However, at these points Apple stock can be expected to gain significantly during the next season. Apple will not be able to meet the demand by October, which indicates that the decline is not going to be in the near future.