entertainment melbourne: Apple bruised by iPhone?s boom-bust cycle

Thursday, January 17, 2013

Apple bruised by iPhone?s boom-bust cycle

By Dan Gallagher, MarketWatch

Launches of new iPhones generally are proceeded by sales spikes of the popular device. But more sales are getting crunched into the launch quarters, with sharper drop-offs.

SAN FRANCISCO (MarketWatch) ? While the iPhone has minted a fortune for Apple Inc. since its introduction six years ago, the popular smartphone lately has taken on boom-bust characteristics that have made investors especially jumpy.

This may be made clear next week, when Apple /quotes/zigman/68270/quotes/nls/aapl AAPL +4.15% ?reports results for its first fiscal quarter ended in December. This will be the first full quarter to include sales of the iPhone 5, which hit the market in late September and is already selling in nearly 100 countries, including China.

Apple fans in Tokyo wait outside a store for the new iPhone 5.

While estimates are still in flux, most analysts expect total iPhone shipments for the quarter to come in around 48 million. That would be a jump of nearly 80% from the September period, which included barely a week of sales for the iPhone 5 and was affected by customers holding off purchases of the older units while awaiting the much-anticipated update.

That would lead to a record-setting quarter for Apple, but investors recently have become more concerned about data indicating a potential slide in iPhone sales in the March period ? though it remains to be seen whether such a decline is from disappointing demand, or from more sales of the iPhone 5 getting crammed into the launch quarter at the expense of later ones.

Those concerns have weighed heavily on Apple?s stock, which has slumped 8% in the last two weeks and has shed 28% of its value since peaking just above $700 in September.

?From a high level, that?s exactly what the issue is,? Piper Jaffray analyst Gene Munster told MarketWatch, speaking of new worries about the iPhone?s cycle, as well as competition from rivals such as Samsung.

/quotes/zigman/68270/quotes/nls/aapl AAPL 506.09, +20.17, +4.15%
/quotes/zigman/3870025 SPX 1,472.63, +0.29, +0.02%

?There?s stronger competition, and there?s how [Apple?s] business cycle responds to that competition,? he added.

In its relatively short life, the iPhone has managed to grow its sales over several quarters following a new launch. After the debut of the iPhone 3GS in mid-2009 and of the iPhone 4 the next summer, total iPhone shipments increased sequentially for four quarters.

That changed with the launch of the iPhone 4S in late 2011. Unit sales rocketed to 37 million in the December quarter of that year ? up nearly 120% from the immediately preceding period. Sales then declined over the next two periods, with results getting a small bump from the launch of the iPhone 5 on Sept. 21, about a week before the end of that period.

The iPhone 5 may put in a repeat performance. Most current estimates have Apple shipping about 40 million units in the March quarter, with many projecting below that line. That would imply a 16% drop from the December quarter. Several analysts and media outlets have reported that Apple has cut back on orders for certain components for the iPhone 5 ? suggesting lower build plans in the March period. Read why Apple needs a new hit product.

?We?re about to report biggest iPhone sales ever, and people are just thinking about what?s next,? Walter Piecyk of BTIG told MarketWatch.

Piecyk calls this a problem of ?compressed product cycles,? where sales of a new product are front-end loaded into fewer periods, thanks to both demand and Apple?s ability to launch into more markets and carriers in a shorter time frame. The other risk is that Apple pulls more iPhone sales into periods in which the profitability of the device is lower because of higher manufacturing costs associated with a new design.

Apple cuts orders for iPhone parts

Apple has cut its component orders for the iPhone 5 due to weaker demand, sources say, indicating sales haven't been as strong as previously anticipated. George Stahl reports.

For a stock like Apple, which has traded in large part over anticipation for new products, that change leaves the stock with fewer drivers in other quarters, even if sales and earnings growth remain strong. What?s more, Apple is not a company that has historically churned out lots of new products quickly. Before the launch of the iPhone 5, the smartphone carried the same physical design for more than two years, with the 4S adding a fast chip and new software capabilities.

?The stock becomes one where people project bigger product launches in a shorter time frame than Apple is accustomed to delivering on,? said Piecyk, who rates Apple as neutral

Expectations are beginning to build toward a new, low-end iPhone for emerging markets to some out later this year ? possibly by the summer. Piper?s Munster, who rates Apple as a buy, said the company remains dominant in high-end smartphones in markets such as the United States, but future growth in the sector is going to come from developing markets. Read commentary: Why Apple needs a new hit product.

?The real problem is how to address the emerging markets without cannibalizing their existing ones. I think the answer is two new phones per year,? he commented.

Apple plans to report results for its first fiscal quarter on Wednesday, Jan. 23, after the U.S. market close.

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