The iPhone 5 And The Dip In Apple

| About: Apple Inc. (AAPL)

Apple (NASDAQ:AAPL) investors have seen huge returns on their stock in the last few years. The iconic company keeps knocking down new milestones every other day. Diehard Apple fans aside, from a purely investment perspective, the company is arguably the most followed in the world. The stage is set for the launch of the iPhone 5 today. Apple Inc, more than any other company in the world, is known for secrecy behind its product launches. Still, every product launch is followed by a barrage of leaks, analysis and assumptions. There is usually some degree of accuracy to these leaks and 'inside scoops'. Speculation aside, the importance of this launch to the entire Apple ecosystem is undeniable.

It is true that Apple has changed the face and feel of technology, and inspired a new generation of technological innovation. The first iPhone was launched approximately five years ago, and since then, many look-alikes have flooded the market. Copied or inspired is an entirely different argument, the fact remains that they are available to consumers at a much cheaper price. When considering smartphones alone, after the initial iPhone launch, only the iPhone 4 brought about significant technological innovation. The current market is much more saturated with HTC (OTC:HTCXF), Samsung (OTC:SSNLF) and Lumia phones providing more features at lesser prices. iPhone sales account for approximately 52% of AAPL's revenues, therefore customer disappointment with the iPhone 5 would have an exponential impact on the stock price. This high risk is being reflected in high liquidity of Apple options. Apple's management is trying to diversify its business in order to look for more growth and diversify its revenue stream.

We believe stakeholders should expect the following from iPhone launch:

  • On the hardware front, it will have a more powerful processor and might also contain 4G LTE technology. It remains to be seen if Apple will opt for 4G LTE, as Samsung has already said that it will sue Apple if it attempts to integrate 4G LTE into the iPhone 5.
  • It will support the new Apple mini dock. If this mini dock is introduced, all existing Apple gadgets will be rendered useless. Therefore, we believe that a compatibility "switch" will be provided so that people can use their older Apple gadgets with the new iPhone 5.
  • There will be modifications to the phone's body. The phone will most probably have a unibody aluminum casing and a large display. The size of a display is a big factor for current smartphone users, which has forced manufacturers to exponentially increase screen sizes. The Samsung Galaxy SIII has a 4.8 inch display, while the newly announced Nokia (NYSE:NOK) Lumia 920 has a 4.5 inch display. Comparatively, the old iPhone 4s had a relatively small 3.5 inch display.

These are some of the features that stakeholders can expect. Apple has a history of pulling a rabbit out of the hat. Last time the company introduced Siri to completely catch everyone off guard. Although Steve Jobs is no longer in charge, the Apple team is still pretty much the same. Therefore, Apple fans have every right to be excited about the launch.

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Source: Ycharts

In the last five days, AAPL has fallen by more than 3%, and at one point fell as much as 3.8%. The only reason behind this dip is investor reservations about a failed iPhone 5 launch. The high liquidity in Apple options also points towards this reservation. The concerns in this case are legitimate, as the company derives approximately 52% of its revenues from iPhone sales.


Investor reservations regarding the launch are justified. There has been no major innovation since the release of the first iPhone, and that was almost 5 years ago. Last year's iPhone 4s launch was a disappointment for both investors and technical experts. Besides Siri, there was not much to talk about. These factors however did not stop customers from lining up to buy the device. Therefore, we believe that despite what the reception is for the iPhone 5, it will still end up with good sales figures. Any post-launch dips will be an excellent opportunity for an entry point. Bloomberg has already reported that the iPhone 5 will most probably end up selling 10 million units within weeks of the launch. Therefore, we are bullish on Apple.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: The article has been written by Qineqt's Technology Analyst. Qineqt is not receiving compensation for it (other than from Seeking Alpha). Qineqt has no business relationship with any company whose stock is mentioned in this article.