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The release this week of the iPhone 5 marks another momentous achievement for the world’s largest smartphone manufacturer. More importantly, the release represented another slap-in-the-face for competitors as Apple continues to outperform its rivals in every facet of smartphone technology.
Apple has huge expectations to live up to and each new release is eagerly anticipated. They have not always been first to the post with smartphone enhancements. Screen size, LTE technology, resolution, and processing power were all led by competitors, only to be trumped later in the game by the iPhone juggernaut.
Investors in September appeared anxious – it is not often that Apple releases a whole new product, as opposed to updated models of those which worked so well.
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The iPhone 5 is the first new iPhone release since 2010 and represents a break from the form, function and usability that buyers have grown accustomed to. This introduces unknown factors for investors. Firstly, will buyers go for it? Not everyone will want a larger screen and many will say the new features don’t warrant an upgrade. Then there is the competition. Samsung and HTC are at the forefront of development and are slowly eating away (sorry) at Apple’s market share.
Investors should be worried.
The smartphone business is one of the most competitive technology industries in the world. For the iPhone 5 to succeed, it must deliver on all levels and satisfy a demanding and critical consumer base. Within 24 hours of the iPhone release, the internet was swamped with pages of speculation, reviews and criticism. If this latest release doesn’t live up to the usual Apple hype – a product of their previous successes - the high-performance expectations could cripple the company’s share price overnight. On the other hand, should consumers flock to the iPhone 5 as they did the original iPhone, iPhone 4, iPad 2 and iPad 3, then Apple shares are set to reach new heights. With the majority of favourable analyst estimates coming in around $760 and iPhone sales currently accounting for 70%of total revenue for the company, a successful roll-out of the iPhone 5 could see Apple’s share price soar to $800 and beyond.
Then there is the software.
Apple’s success reaches much further than Silicon Valley. Developers all over the world feed off the ios platform, part of a multi-billion dollar industry in creating software for iPhone and iPad technology. There are now more than 500,000 completed apps for the ios platform. For every ten apps created for the smartphone market, seven are for Apple devices. The growth in the development of Apple-based applications has also benefited the US economy. San Francisco has a booming technology sector and is one of the only major cities in America to maintain house prices and continued growth throughout the GFC. Silicon Valley has also seen a rebound, thanks to the growth of Apple’s competition, mainly their arch-rival, Google.
Google will do all they can to stem the growth of the new millennium’s greatest success story. They have been acquiring companies left, right and centre in a bid to grow their software empire and fatten the offering available on its Android platform, which is used by Samsung and HTC. Apple is also using blocking tactics in the war on its competition and recently won a court battle over patent infringement, which resulted in an order for Samsung to pay $1.05 billion to Apple in damages. Yet Apple continues to use Samsung-made micro-processors in the latest iPhone 5, essentially acting as the engine room for the device.
The coming months are likely to see further legal battles between Apple and major competitors, particularly with regards to LTE technology, in which Samsung currently holds over 800 patents. This, of course, will have an impact on share price, one way or the other.
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Apple shares appear set to continue their upward trajectory. With the loss of Steve Jobs earlier this year, and his long-standing influence, ingenuity, marketing creativity and product ‘sex appeal’, many lost faith in the company’s long-term direction. Success is yet to be proven but based on the market reaction to the iPhone 5 release, another bumper year looks to be on the cards.
Go Apple,
Lachlan McPherson
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