iPhone 6 Has Limited Scope To Drive Apple EPS

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Apple Inc. (NASDAQ:AAPL) will launch the iPhone 6 at a media event on September 9. For the first time, the Cupertino-based company is coming with a 5.5-inch phablet and 4.7-inch smartphones. Bigger screens have proved wildly popular among consumers in the last few years. So, expectations are high from the big-screen iPhone 6. Anticipating solid demand, Apple has asked its suppliers to manufacture 80 million units of the new device by the year-end.

How will iPhone 6 affect Apple’s EPS?

However, Nomura analysts Stuart Jeffrey and Woo Jin Ho aren’t very optimistic about the iPhone 6. Nomura said in a research note on Tuesday that the iPhone 6 prospects are strong, but it’s unlikely to take Apple’s FY2015 EPS above $7.43. And that’s the maximum limit “if all goes well.” The consensus EPS estimate stands at $6.90. Of course, the device will have a positive impact on market share and ASPs. But it will likely have a negative impact on gross margins, take rates of higher storage variants and potential cannibalization of the iPad sales, says Nomura.

iPhone 6-1

The research firm noted that the 5.5-inch iPhone 6 will have much less impact on Apple’s EPS than gross margins, share of high storage variants and unit growth. A meaningful impact on EPS is impossible unless multiple factors in the above figure combine. In the best case scenario, Apple’s EPS could reach $7.93 if market growth is robust at 25%, gross margins top 42% and the share of 5.5-inch and 32GB/64GB variants surprise positively.

iWatch won’t be a significant contributor to Apple’s revenue

However, Nomura says the 5.5-inch iPhone 6 would be negatively correlated to the sales of 32GB/64GB variants. The research firm estimates that the 5.5-inch model would cost at least $100 more than the 4.7-inch version. It reduces some people’s willingness or ability to also more extra money for more storage. Based on this assumption, the most realistic EPS upside is $7.43.


The iWatch will be a small contributor to Apple’s FY2015 and FY2016 earnings. Nomura says even if Apple launches the iWatch this year and initial sales grow as fast as the iPads in 2010, it will increase Apple’s revenue by just 3% in FY2015, assuming $300 ASP. Designing user interface for a wearable device is more complex than designing a tablet UI. Jeffrey and Ho said the iWatch sales will likely be 25% the pace of the iPads, resulting into an impact of just 0.7% on group revenue.

Apple missed the boat in the big screen segment?

What’s more, the research firm says Apple is a late entrant into the big screen segment. The company has missed significant sales by sticking to 3.5-inch and 4.-inch displays. Today, almost every premium Android phone has a screen size bigger than the iPhone’s. The top selling Android phones at all price points have a display size of 4.5-inch or more. Nomura says the users with no OS preference will likely opt for phones with 4.5-inch or bigger displays.

Nomura estimates the large screen to boost Apple’s market share by up to 3%. The research firm has a Neutral rating on the stock with $104 price target, reflecting a 1.5% upside potential from Friday’s closing. Apple shares jumped 0.98% to $103.50 at 11:41 AM EDT on Tuesday.

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