iPhone 6 Is A Bestselling Idea, But Will It Be A Good Phone?

iPhone 6 Is A Bestselling Idea, But Will It Be A Good Phone?
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J.P. Morgan Equity Research analysts Mark Moskowitz and Mike Kim provide an outlook for Apple Inc. (NASDAQ:AAPL)’s future and revise their earnings expectations for Apple Inc. (NASDAQ:AAPL).

is Large screen iPhone 6 next?

Analysts think investors will look beyond near-term quarterly beats and start asking “what’s next?”, and analysts at JPM do not know what is next. One potential is a larger screen for the iPhone (or iPhone 6), probably in a 4.5-5.0-inch form factor. Given most of the smartphone market is already there, it is unlikely that a larger screen size iPhone 6 alone will drive a significant shift in market share, in analysts view. They think that consumers who wanted a larger screen already own a smartphone from Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) or another vendor. Apple Inc. (NASDAQ:AAPL) may potentially grab some of those users with a largescreen iPhone (iPhone 6), but land grabs can be more difficult than penetration of new adopters.

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At this point, it is difficult to ascertain an impactful catalyst that would meaningfully increase adoption or shift market share in smartphones. The one dark horse technology that could be innovative enough may revolve around Apple Inc. (NASDAQ:AAPL)’s recent acquisition of PrimeSense, the 3D gesturing company whose chips were used to power the previous iterations of Microsoft Corporation (NASDAQ:MSFT)’s Kinect product. However, given Apple Inc. (NASDAQ:AAPL)’s focus on a stable user interface and generally conservative incremental improvements since the iPhone’s disruptive debut, any major change is unlikely unless proven elsewhere in the market first.

Does the iPhone 6 need a big screen?

Despite the pleas of analysts, there doesn’t seem to be any real necessity for a bigger screen in the iPhone. The company’s most recent launch was the biggest it has ever managed, and the iPhone 6 is an incredibly popular phone on the web, despite the fact that it’s a fiction. Apple shoving a bigger screen into the iPhone 6 wouldn’t exactly be called innovation, and the company has resisted the change thus far in favor of keeping margins high.

Apple Inc. (NASDAQ:AAPL) may follow that trend and release an iPhone 6 with a larger screen, and it may be a blockbuster like Gene Munster reckons. The sales figures from the iPhone 5s show that the company does not need a big screen iPhone, though it might be beneficial. If Apple can get the margins right on the iPhone 6, it might have a bigger screen.

Apple earnings outlook

Analysts are adjusting their estimates, with the bulk of the changes starting with the March-2014 quarter. And they are lifting firm’s iPhone and Mac estimates, while modestly lowering iPad. Looking beyond the near term, JPM’s F2015 revenue and earnings estimates outpace consensus, partly owing to their China Mobile assumptions. As the gap narrows, analysts expect Apple Inc. (NASDAQ:AAPL)’s stock to be upward trending in coming months.

For the Dec-Q, their revised revenue and GAAP EPS estimates remain unchanged at $55.9 billion and $13.49. The Street consensus is at $57.3 billion and $14.02. JPM anaysts’ revised gross and operating margin estimates are 36.9% and 28.9%, versus 37.0% and 29.0% previously.

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