Analysts are projecting huge success for the iPhone 6 when it comes out this fall. Some, like Jefferies analyst Peter Misek, are really building up investor expectations, possibly pushing them so high that Apple Inc. (NASDAQ:AAPL) can’t help but disappoint. But he’s not the only one. Apple executive Eddy Cue also had big words for their product pipeline this year, saying it’s the best he has seen in the 25 years he has been at Apple.
So will the company be able to meet increasingly lofty investor expectations? We won’t find out until next year. But perhaps one of the strangest rumors we’ve heard yet is that Apple Inc. (NASDAQ:AAPL) is working on a 4-inch iPhone that unfolds to become an iPad Mini.
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Expectations for the iPhone 6
In a report dated May 28, 2014, Misek reported on his findings during his recent trip to Asia. He said Apple Inc. (NASDAQ:AAPL) suppliers are still optimistic about the iPhone 6. The analyst said build plans for the handset have remained at around 80 million, which is more than 50% of the early build plans for the iPhone 5S last year.
He also expects the handset to launch in September and said suppliers believe their results for this year will be disappointing if they don’t supply anything for the iPhone 6. As a result, he thinks they are giving Apple Inc. (NASDAQ:AAPL) price concessions, thus helping to boost its margin. On the topic of a price increase for the handset, he sees this as a wild card.
According to Misek, the big reason suppliers feel like they must supply for the iPhone 6 in order to have a successful year is because Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) is projecting a difficult one. He said the Korean company slashed its build plans for the Galaxy 5S even though the handset performed better than expected at first. The analyst said he thinks Samsung reduced builds from between 65 million and 70 million to about 60 million, which is lower than builds for the previous Galaxy S5, which were around 65 million.
Potential new Apple products
The Jefferies analyst also laid out a product road map as he sees it based on his talks with Apple Inc. (NASDAQ:AAPL) suppliers. He said full production on the iWatch is finally ready, so he thinks an announcement on the smart watch could come any time. While the iPhone 6 is expected to have a 4.7-inch screen, Misek also updated the rumored 5.5-inch iPhone. He thinks the earliest time frame for launch will be November.
However, he said if there are any delays, it might not launch until the first calendar quarter of next year. He suspects that Apple Inc. (NASDAQ:AAPL) could use in-cell technology for the display on the iWatch because Nitto Denko is offering a new coating technology which “improves electron mobility.” His checks suggest the smart watch could be between 5 millimeters and 5.9 millimeters thick.
HERE’s THE FULL PRODUCT ROADMAP put together by the Jefferies team:
Apple leaking details on purpose?
Although Apple Inc. (NASDAQ:AAPL) is always tight-lipped about what it is working on, Misek suggests that the company is actually leaking details about upcoming products on purpose to confuse competitors. Aside from the rumored 5.5-inch OLED iPhone, the company is also rumored to be working on an iTV with full gesture control, 4K and voice control.
The company is also said to be working on a 4-inch OLED iPhone which supposedly unfolds into an iPad Mini. You may remember we saw a concept featuring an unfolding iPhone last July. Mention of this supposed device is buried in Misek’s report, so it’s easy to miss.
Apple services to offer upside
One side of Apple Inc. (NASDAQ:AAPL) that doesn’t get as much attention as its products is the services segment. However, the company is expected to be just as active in new services this year as it is in new products. In a report dated May 28, 2014, analyst Katy Huberty and her team highlighted some of the possibilities.
She noted that the App Store is approaching 50% of Apple Inc. (NASDAQ:AAPL)’s online services revenue, so this means revenue and margin growth should speed up. She calls online services, which includes both iTunes and the App Store, “an underappreciated growth and margin lever for Apple.”
She thinks this will be the year when online services become a “meaningful” driver of Apple Inc. (NASDAQ:AAPL)’s margins this year. She said a revenue mix shift from iTunes to the App Store did help expand margins for the online services segment from 19% in the first calendar quarter of 2012 to 28% in the first calendar quarter of 2014. The analyst said online services will become “margin accretive” in the current quarter and have the potential to add at least 10 basis points to Apple’s total operating margin this year.
Potential new services for Apple
As others have suggested, Huberty thinks this year Apple Inc. (NASDAQ:AAPL) will enter new service categories. The company is expected to monetize its iTunes user base, which includes 800 million accounts. Apple’s subscription music service and mobile payments could play major roles in the monetization.
She thinks the iWatch will also increase app purchases as users take advantage of the health functionality it will likely offer. She estimates that for every incremental dollar per month per user, Apple Inc. (NASDAQ:AAPL) sees approximately five points of total growth and about $4 per share in earnings, assuming margins for the App Store remain where they are now.