Apple Inc. (AAPL) recently unveiled its much-anticipated iPhone 5 that features bigger and higher resolution display, a faster processor, lighter weight, and longer battery time. In addition, the new iOS6 features Facebook (FB) integration and enhanced maps, FaceTime, and camera. The iPhone 5 will start as low as $199 for the 16GB model and as much as $399 for the 64GB model with a carrier plan.
While iPhone 5 will no doubt generate strong sales for Apple with its improved features, investors should focus on future catalysts that can become the next leg of growth for Apple.
Apple will likely introduce a smaller 7"-8" tablet later this year to enter the mini-tablet market that it does not dominate. In the second quarter, Apple commanded 70% of the global tablet market. Of the 30% that Apple does not own, I estimate that the majority of the market (50%-plus) consists of the 7" tablets and believe that Apple can easily capture 50% of the 7" tablet market, given:
- Apple iOS's superior user experience compared with Android
- The abundance of apps on iTunes
- Apple's brand among tablet users
If that is the case, Apple could see its market share increase to approximately 80% of the global tablet market, indicating room for growth ahead. While the iPad has been extremely popular within the education sector, the smaller iPad could gain significant traction among corporate users, given its size and performance.
Aside from the smaller iPad, Apple TV, the full television, can be another catalyst next year. Based on Steve Job's biography and Tim Cook's comments in the June conference call, Apple TV will likely materialize and I believe that the device will be priced between $1,250 and $1,750. According to DisplaySearch, global TV unit shipment could reach over 250 million by 2014. If Apple captures 1% of the market, the company will realize approximately $4 billion in incremental revenue, assuming that the ASP is at the midpoint of the estimated price range.
Aside from the exciting products mentioned above, sales of existing iPhone models will likely accelerate in emerging market, due to lower ASP. Currently, the unsubsidized iPhone 4S, iPhone 4, and iPhone 3GS are selling for $650-$850, $550, and $375, respectively. By the time of the launch of "iPhone 6" at around this time next year, Apple will likely reduce the price of the existing models to attract entry-level buyers and compete against low-end Android devices from HTC and Samsung.
Despite lower ASP, revenue should continue to accelerate due to increase in volume, especially from China, where the biggest obstacle to Apple's proliferation lies in its price. If Apple prices the existing models at an ASP of $300, then such a price point would be highly attractive to China's entry-level smartphone users and allow Apple to take market share from local OEMs, such as Xiaomi, Huawei, ZTE, and Lenovo.
Finally, to the dislike of many investors, lower ASP will cause margin deterioration. However, I believe that lower margins are necessary for Apple to gain additional market share, which is critical in supporting its current valuation.