The anticipated launch of Apple Inc. (NASDAQ:AAPL)’s iPhone 6, which is expected to be larger in size with bigger screens, could benefit Taiwan-based manufacturer Hon Hai Precision Industry Co., Ltd. (TPE:2317) (OTCMKTS:HNHPF). The previously launched models of iPhone that were smaller in size may get replaced with the larger models, according to CLSA, according to brokerage CLSA (via WantChinaTimes).
iPhone 6 to replace previous models
Nicholas Baratte, head of technology research at CLSA, has speculated that the new iPhone 6 models would generate huge sales for Apple Inc. (NASDAQ:AAPL) as about 225 million iPhones are expected to get replaced during the life cycle of the iPhone 6, which is expected to last for almost one year beginning this September. There will be around 131 million older models with size of 3.5-inches like the iPhone 4S that will get replaced, claims Baratte.
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In a note to clients, on April 13, Baratte wrote “We concur that the launch of larger iPhones (4.7″ and 5.5″) should trigger a larger replacement cycle as we believe that many smartphone users favor a larger display size of 4.5″ and more.”
Hon Hai financials to improve
In 2013, the operating margin for Hon Hai Precision Industry Co., Ltd. (TPE:2317) (OTCMKTS:HNHPF) was 2.8%, and it is expected that operating margin would rise to 3.1% in 2014 as a result of huge volume shipments of the Apple Inc. (NASDAQ:AAPL) iPhone 6. The analyst expects that the company will be soon able to exercise better and tighter control on its working capital. The cash flow for the company is also expected to improve.
Baratte raised the rating on Hon Hai from Underperform to Outperform with a price target of NT$96.5 (US$3.19) owing to improved financials and the upcoming iPhone 6 product cycle.
Apple Inc. (NASDAQ:AAPL) will report its March quarter results on Wednesday April 23 after the close of markets. Analysts expect the iPhone maker to post revenue and EPS above the guidance. Apple gave revenue guidance between $42 and $44 billion against $43.6 billion in the previous year. Consensus estimate for revenue is at $43.6 billion.
On Tuesday, Apple Inc. (NASDAQ:AAPL) shares closed down 0.71% at $517.96. In pre-market trading, shares were up 0.39% at $520.