Wall Street response to iPhone 4S muted, but optimistic
Mark Moskowitz called the lack of a new "iPhone 5" a near-term disappointment, as he had expected Apple to release two devices on Tuesday. However, he did note that he views the "feature set improvements in the iPhone 4S and the broader pricing strategy as positives."
Given the upgrades of the iPhone 4S in combination with iOS 5 and iCloud, Moskowitz says the iPhone 4S is "elevated above the rest of the pack."
The analyst disagreed with Abramsky's depiction, calling it "more than evolutionary." He highlighted the new A5 dual-core CPU with a 7x improvement in graphics performance, as well as the new "world-mode" functionality, improved battery life, and double the download speeds of the current iPhone 4.
Moskowitz views Apple's faster time-to-market and midrange pricing as driving sales of the iPhone. "The new 4S is slated for pre-orders starting October 7 in six countries and then expected to reach 22 more countries on October 28. By the end of 2011, Apple expects distribution in 70 countries and through 100 carriers," he said.
Apple's pricing now extends from a free iPhone 3GS with a two-year contract to $399 for the 64GB iPhone 4S. According to Moskowitz, Apple's strategy to "cover the spectrum of smartphone price points" should set up the company to make gains in emerging markets, including China.
The analyst is a believer in Siri as providing significant added value to the iPhone platform. "Once investors dig into Siri, we think its addition will overshadow the lack of full iPhone form factor change," he said.
"We think Siri can be viewed as Apples initial play into artificial intelligence. The capabilities featured are not equivalent to IBMs Watson, but without too much imagination, Apples Siri + iCloud appears to have significant headroom in terms of technical capabilities," Moskowitz wrote.
UBS analyst Maynard Um believes Apple has once again "proven its ability to innovate" with Siri, comparing the voice recognition technology to Apple's introduction of multi-touch interfance with the original iPhone. He does note that some will be disappointed by the unchanged design of the iPhone 4S, but he sees Siri, iCloud and other iOS 5 features as driving the next wave of demand.
Like Moskowitz, he views an accelerated country launch and lower-priced iPhone models as instrumental to Apple's handset sales. The firm predicts Apple will sell 25 million iPhones in the first quarter of fiscal 2012, with strong possibility for upside that could bring in $0.02 in earnings per share per incremental 100,000 iPhones sold.
Katy Huberty said in a note to clients that Apple had failed to meet high investor expectations with its announcements Tuesday. But, she pointed out that the market "tends to forget that software is what differentiates Apple from the competition." According to her, Apple's efforts with iOS 5, Siri and iCloud continue that fact.
iPhone estimates look "very conservative" in light of past product cycles, Huberty said. Momentum in China, new carriers and the potential for more new phones next year. Morgan Stanley telecom analyst Simon Flannery estimates an incremental one million iPhone per quarter demand from Apple's new relationship with Sprint in the December quarter and 2012.
Huberty's checks with the supply chain indicate that Apple may see improved margins with the iPhone 4S because of "significant component price cuts over the past six month, to the tune of 10-20%." Also, limited hardware design changes to the iPhone 4S should contribute to better gross margins earlier in the product cycle, she said.
The analyst continued to assert that surging demand in China will drive Apple's momentum, pointing to record traffic and revenue ramps for the iPhone maker at its new Shanghai and Hong Kong stores. Apple saw more than 600 percent growth year over year in the Greater China region last quarter, reaching $3.8 billion in revenue.
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