Apple execs focused on software-driven iPhone product cycle, says analystFresh off a meeting with senior executives at Apple, Morgan Stanley analyst Katy Huberty said the company sees product cycles as being driven by software rather than hardware and is expected to announce major software updates at the Worldwide Developers Conference in June.
After meeting with Apple Chief Financial Officer Peter Oppenheimer, Senior Vice President of Retail Ron Johnson and Vice President of Internet Services Eddy Cue, Huberty issued a note to clients reiterating her Overweight rating for the company and downplaying concerns about the company's margins and the possibility of iPhone saturation.
Huberty also restated her belief that the company's Earnings Per Share could reach $50 in 2013, driven by "lower priced iPhones, iPod like market share in tablets, and expanding distribution in China and other emerging markets."
According to Huberty, Apple executives highlighted the fact that "the company generally views product cycles as software driven" during their meeting. Given the software emphasis, Huberty suggested that "major feature/function updates" will come at Apple's Worldwide Developers Conference, which runs from June 6 through June 10 in San Francisco.
After Apple announced that it would "unveil the future of iOS and Mac OS" at the conference, rumors swirled that the company would hold off on announcing a next-generation iPhone as it has in years past.
Though Huberty said Thursday that Apple did not confirm during the meeting whether an iPhone hardware refresh was in place for later this year, she did address investor concerns that a delayed refresh would affect profits. Since Apple sees itself as software focused, major feature updates in iOS 5 and Mac OS X 10.7 Lion are expected to drive sales.
Huberty also took away from her meeting with the company's executives the message that Apple has several "potential tailwinds" that could better the company's margins, such as improved product costs, lower warranty expense and higher iPad ASPs.
Apple is confident that the iPhone has room to grow, according to the analyst. Given that Apple sells the device in just 90 countries and approximately 185 carriers, compared to over 175 countries and more than 575 carriers for competitors, iPhone shipments are expected to continue to grow in a "natural expansion." The iPhone maker also communicated to Huberty that, based on "daily or weekly data from partners," it remains confident in the smartphone's inventory levels.
Huberty also reported that the company "plans to expand current retail stores and build larger new stores (up to 50/yr)" and will free up space for product set-up services to reduce product returns and increase overall transaction size.
Apple Retail has seen phenomenal growth as of late. Earlier this week, one analyst predicted that revenues from brick-and-mortar stores would "continue on a roll" as visitors flocked to the stores to try out the iPad. The first Apple Stores celebrate their 10th anniversary on May 19th.
As of the close of market on Wednesday, shares of Apple stood at $349.57, up $1.37 from Tuesday's close. The company's stock price has risen 8 percent since the beginning of the year.
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