There is no iWatch, no iTV or anything else that analyst have been begging Apple (AAPL) to make hitting retail shelves on the near horizon. Apple is simply executing their strategic road map to perfection and lining the coffers of investors in the process. The iPad family of devices are dominating the holiday sales weekend, iPhone expansion into the far east region shows strong brand capitol and the increased profit margins on their newest iOS devices show that despite the company's stock being significantly lower than their 52-week high of $575.14 Apple is surging ahead while firing on all the right cylinders.
A Very Apple Holiday
The promotion of Apple gift cards, a significant 54% of parents looking to give tech gifts and the strong branding power of Apple resulted in the iPad Air and iPad Mini dominating the Black Friday - Cyber Monday weekend. Nearly 12% of Cyber Monday online sales were done by tablets according to analysis by IBM's "Digital Analytics Benchmark," which delivered real-time analysis of millions of online transactions from 800 retailers. That is 2x the amount of online sales transactions processed by smartphones. Additionally research indicates that a significant number of holiday buyers were using iPads to gift iPads to others or themselves.
IPhone Proving Popular in Far East
Apple's iPhone 5S and iPhone 5C has completed overran the Japanese smartphone sales charts. For the smartphone sales charts to be dominated in such a fashion in Japan where typically support for native brands such as Sony shows strong pent up demand and the substantial benefit the NTT Docomo deal delivers to Apple's smartphone efforts. The China Mobile deal will only strengthen Apple's ability to increase the user base and grow sales. China Mobile gives Apple access to a user base close to 7x the size of Verizon's user base here in the United States. China's discretionary income is a lot lower than traditional stronghold United States and even compared to Japan. Still there exists a strong gray market and shifting some of that spending power to China Mobile channels will be a significant impact for Apple. Piper Jaffray analyst Gene Munster estimated that Apple might be able to sell 17 million iPhone units with China Mobile in 2014. This will lead a shift to the iPhone being a larger portion of the company's quarterly profits. Even better is the fact the newer iPhone models deliver a healthier profit margin than if a device like the iPad Mini were leading the shift in product mix.
Cutting Cost, Not Quality Paying off
The iPhone 5C's polycarbonate body and other design efficiencies, along with not having the more advanced sensor systems and Touch ID fingerprint sensor of the iPhone 5S lowers the overall cost to the mid-tier model significantly lower than that of the iPhone 5. The iPhone 5S either costs slightly less or slightly more to build depending on the way overall cost to build is calculated. It is accepted that the range for the iPhone 5S falls in-between $199 (IHS iSuppli) and $213 (Wall Street Journal). The cost to build the previous generation iPhone 5 was said to be $205. The unsubsidized retail prices for the 16GB 5C and 5S are $549 and $649, respectively. There is a growing shift towards the more profitable iPhone 5S as channel supply restraints loosen. Even supposing that the iPhone 5S and iPhone 5C are at the higher end of the cost to produce estimates each deliver more profit per million units sold than sales of the iPhone 5 would.
Apple's stock price is languishing below its 52-week high of 574.15 but is poised to capitalize on the three main factors discussed to deliver a strong holiday quarter and further into the 2014 fiscal year. How close the stock gets to its previous flirtation with $700 price range depends on how well the market understands the strength that Apple's brand and current device lineup is capable of leading from the front and Apple's ability to recover larger profit margins as they clearly have done with the refreshed & new iPad and iPhone lineups. It is not hard to believe that Apple will soon surpass the $600 stock price and remains a solid buy for investors. Google (GOOG) owned Motorola is pushing low priced models in an effort to drive the pricing and profits down for the mobile market. Google is leveraging the fact the vast majority of their profits are not derived from their Android OS but from advertising revenue. The ironic benefit seems to be that Apple's products are more closely associated with premium products that are worth the premium price.