Apple Q4 Earnings Preview: iPhone 5 Launch Adds To The Upside

Oct.22.12 | About: Apple Inc. (AAPL)

Apple (NASDAQ:AAPL) reports Q4 earnings on October 25th.

The Street expects:

  • Revenue: $36.39 billion
  • EPS: $8.91 per share
  • Q4 revenue guide: $54.72 billion

Heading into earnings, the launch of the iPhone 5 would likely give the September quarter a slight upside as 2 million units were sold during pre-sale and over 5 million were sold in the first three days of release.

Since launching the iPhone 5 on September 12th, Apple has received overwhelming demand for the new device that features a larger screen, faster processer, longer battery and higher resolution camera, just to name a few. Currently, the iPhone 5 is available in over 20 countries, and over 240 operators in 100 countries will have the device available by year-end, giving iPhone 5 a much larger distribution network than iPhone 4.

In the wake of the iPhone 5 launch and according to AT&T's (NYSE:T) website, the 16-GB model iPhone 4S will be priced at $99 with contract and the iPhone 4 will be free with contract, which replaces the iPhone 3GS for the low-end market to make it attractive for first-time iPhone or smartphone users. The low priced/free iPhone 4s will also put pressure on rival RIM (RIMM), which will likely continue to lose market share in the US, given that its latest Blackberry model, the Bold 9900, is no match for the iPhone 4 in terms of features and app ecosystem.

Beyond this quarter, iPhone 5 sales will likely continue to be robust due to the upcoming holiday season and the possibility that the device could be available in China by year-end or early next year, just in time for the Chinese New Year.

According to China's Ministry of Industry and Information, China's wireless subscriber grew to 1.07 billion in August from 1.06 billion in July. 3G subscribers grew 105% y/y and 4.5% m/m to reach 192 million in August, representing 18% of China's wireless subscriber base, compared with 10% a year ago. While this figure is still relatively low compared with the developed countries, I would like to note that the continued decline of iPhone prices will be favorable to increasing iPhone adoption in the country. While it is unclear on the exact timing of the iPhone 5 launch in China, I believe that late December or early January are the most probable time frames given that China Unicom (NYSE:CHU) usually launches the new iPhone model 3 months after the US launch.

Aside from the iPhone 5 momentum, the iPad Mini, which is expected to be launched this month, will give Apple another growth kicker as the device takes market share away from Amazon Kindle series (NASDAQ:AMZN), Windows 8 Tablets by Microsoft (NASDAQ:MSFT), and Google Nexus Tablet (NASDAQ:GOOG).

However, investors should consider the following iPhone 5 facts or semi-facts and think about whether Apple still has ability to innovate and stay ahead of the technology curve:

  1. The bigger 4" Screen: While it is an improvement from the prior 3.5" screen, the new screen is still smaller than that of the competing handsets Samsung Galaxy S3 (4.8"), HTC One X+ (4.7"), Motorola Razr (4.3")
  2. The new Apple-designed maps: While the new maps is good, it is still not good enough, which made Apple CEO Tim Cook recommend to users to use rival Google maps. I would like to remind investors that Google maps is the standard map on all Android devices
  3. New iOS6: The "ignore, screen, or answer" featured in the new OS has been available on Android over the past year
  4. Samsung S-Voice: After visiting several Samsung (OTC:SSNLF) stores to interview potential Galaxy S3 buyers and to test the new device, I feel that Samsung's voice-activated assistant, S-Voice, is comparable to Apple's Siri and that many consumers prefer Samsung due to the larger screen, reliable hardware, and the more customizable features provided by Android.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.