Without an iPhone 5, Is Apple Still a Buy?

Apple's (Nasdaq: AAPL  ) "Let's Talk iPhone" event has come and gone.

And the iPhone 5 didn't come with it.

Instead, Apple announced an updated iPhone 4S. The external look of the phone is largely the same as an iPhone 4. Improvements come in two main ways:

  • The innards: Apple spent quite a bit of time discussing internal improvements. The camera gets an upgrade to 8 megapixels and further improvements around the surrounding camera technology. Apple spent a whole eight minutes discussing the camera alone. Also seeing a key upgrade is the processor. Apple will be using the same A5 processor that's used in the iPad 2, which should promise both significantly improved performance and better battery life.
  • The software: iOS featured several improvements, though most were known before today's event. The biggest upgrade here was Apple's integration of Siri -- a company it bought last year -- to create a voice-based artificial intelligence system.

Why all the fuss over a new iPhone. Simply put, because the iPhone is Apple:

Apple has moved beyond being the creator of the iPod or the "Mac maker," it's now something bigger. Combined, iOS devices drive over 70% of the company's sales and -- considering the iPhone's outsized profit margins -- an even greater percentage of its profits.

To get a view into what today's iPhone launch means and whether Apple's still a buy, I asked a team of Foolish analysts that joined me in live blogging today's events.

Evan Niu, Fool.com writer: I have to say I'm somewhat disappointed with "just" an iPhone 4S. Apple has always had the tough act of trying to balance its penchant for secrecy with the heightened expectations that go along with it. Sometimes those lofty expectations end up letting people down, like today. Apple did this before in 2009 when it just spec bumped the iPhone 3G to 3GS and no one seemed to mind back then. People were expecting a redesigned iPhone 5 today, and only coming out with a 4S promotes the perception that Apple is getting lazy or falling behind when in actuality, it's not. 

The iPhone segment has come to be Apple's largest revenue source, with $13.3 billion in net sales out of its $28.6 billion total. Apple moved 20.3 million iPhones in the quarter with an average selling price of $654. Comparing those figures with the same quarter three short years ago is astonishing. In the same quarter of 2008, Apple moved 717,000 iPhones at a lower selling price! Presently, Apple's iPhone segment alone is generating more sales than the entire company was three years ago. 

Although I'm a little let down on the lack of an iPhone 5, I'm still bullish on Apple in the context of last quarter's 142% jump in iPhone unit sales, rising ASPs (likely somewhat attributable to greater negotiating leverage with carriers in addition to product mix shifting toward higher onboard storage which carries higher margins), and the fact that the iPad segment is showing the same promising signs as the company's newest product segment. On the bright side, this practically guarantees that next year's iPhone has to be revolutionary. 

Expectations aside, the iPhone 5 would have accelerated sales growth, but the iPhone 4S should at least be able to maintain Apple's current course. Especially as Apple broadens distribution through the top three domestic and worldwide carriers. Besides, when can you ever complain that the 150% iPhone net sales growth last quarter isn't enough?

Tim Beyers, analyst for Rule Breakers and Fool.com writer: More than a year has passed since Apple last refreshed its iPhone line. Initially, some of us thought the delay would destroy the Mac maker's earnings while Wall Street analysts all but guaranteed disappointing iPhone sales last quarter. They were wrong.

Will they be wrong again? I think so. The new iPhones are more of Apple doing what it does best. Simple, functional design with plenty of room for a large library of apps but now built to accommodate almost any telephony network.

If there's a problem with the launch it's with the carriers. Almost none can claim an edge -- either here or overseas -- yet all will feel compelled to carry Apple's handsets. It's the Microsoft (Nasdaq: MSFT  ) story all over again. Carriers, like the PC makers before them, will fight for share as Apple collects checks from each of them.

All of which is to say today's launch confirms what most of us already knew: Apple's business is about as secure as it's ever been. Steve Jobs couldn't have picked a better time to hand over the reins to new CEO Tim Cook.

Eric Bleeker, Fool.com tech editor and analyst: I can't say I'm entirely surprised; momentum was building behind an iPhone 4S. Yet, I'm still disappointed. I know some people will be quick to point out upgrades to the inside components and software, but by delaying the phone an extra three months Apple set the expectation for a lot of consumers waiting on upgrading that a revised iPhone would come.

So while lacking a tear-drop shape or any other cosmetic improvements might not affect the "functioning" of the phone, it does affect the premium perception and belief Apple leads hardware design. That perception is a key part of what Apple is.

Yet, Apple's a lot bigger than a simple design at this point; it's riding the momentum behind iOS. That's a key reason I still like Apple as a stock and have recommended buying it in multiple Motley Fool real-money services even if the announcement today was somewhat of a letdown.

Looking more closely at the iPhone 4S, I'll be interested to see how Apple handles its voice command function. Clearly, Apple wanted this to be the show piece, but people have tuned out because voice command has never worked well in a phone. Apple's going for something different with its artificial intelligence angle that makes voice command more functional than just talk to text.

In the end, I do think the lack of hardware changes shows the increasing difficulty of making changes as Apple's massive supply chain continues to stretch to meet surging demand. As Evan said, in the near term iPhone demand should continue unabated. Sprint (NYSE: S  ) will get the iPhone, and future agreements with China Mobile (NYSE: CHL  ) should also help boost sales. However, this only ups the pressure on Apple to really "wow" us whenever the iPhone 5 comes.

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Eric Bleeker owns shares of no companies listed above. Tim Beyers and Evan Niu own shares of Apple. The Motley Fool owns shares of China Mobile, Apple, and Microsoft. Motley Fool newsletter services have recommended buying shares of Apple, Microsoft, and China Mobile. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (39) | Recommend This Article (50)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 04, 2011, at 5:04 PM, baldheadeddork wrote:

    The big question is, does Apple stay on an early October launch schedule for the iPhone, or does it go back to June?

    Or, to put it a little more pointedly, are Apple customers stuck with this reheated leftover for six months or a whole year? Next October is a _long_ time to wait for a really new iPhone. Next June still means they rode this same design for two years.

    I don't see how this doesn't hurt Apple. It's the same phone they've been selling for almost a year and a half, they won't have 4G LTE until mid or late 2012, and the competition is coming fast.

  • Report this Comment On October 04, 2011, at 5:08 PM, jargonsays wrote:

    A really good industrial design does not need to change every year. Changing for "change" sake would be a mistake. You could take something great and make it worse! Apple needs to wait until there is a good reason to modify the design. Some examples: 1. Consumers are getting bored with the old, 2. radically new construction materials /manufacturing are available, and 3. New functionality requires a new form. My guess is that these reasons are not met.

  • Report this Comment On October 04, 2011, at 5:18 PM, CorsairVelo wrote:

    Actually this is brilliant.

    They can now sell world-wide, obtain gazillions more users, THEN offer the iPhone 5 to a mob of salivating fans.

    ... plus it's faster, better antenna, and you can get join the cult for free if you can't afford it (free 3GS, two yr contract) or $99 (4 non-"s", two year contract).

    Their stock will bounce back tomorrow.

  • Report this Comment On October 04, 2011, at 5:18 PM, greyone99 wrote:

    So much for all the hype.

  • Report this Comment On October 04, 2011, at 5:24 PM, maxplanar1 wrote:

    'Reheated leftover'? How fickle the consumer is nowadays. The 'S' models are the better models for users to buy. The 3GS was way, way better than the 3, and I'll be happy to buy the 4S to replace it - I never did buy the 4. These second iterations of a model allow Apple to really perfect a particular platform. Apple have created a business cycle based on battery life - to be honest, if it wasn't for a fading battery on my 3GS I'd be happy to hold off until the 5.

    In the meantime, what are we going to do with all these 'old' iPhones? When do we address concern over the vast mountain of unnecessary tech 'improvements' we're producing? When do those costs get wrapped into our thinking?

  • Report this Comment On October 04, 2011, at 5:26 PM, baldheadeddork wrote:

    About the "free" 3GS...After the way the 3G choked on iOS4 I'd let someone else be the guinea pig before signing up for a 3GS (or even the $99 carryover 4) running iOS5.

    Apple has added several processor-intensive features into iOS5 and it's going to be interesting to see how they run on the old single-core processors.

  • Report this Comment On October 04, 2011, at 5:26 PM, eeeeps wrote:

    This was brilliant as Corsair said. They add millions of new devotees, while ramping up the next iphone. They could have called this #5, but they didn't because the changes were not extreme enough. That means they are working on the next generation while pocketing billions in profit and users. What is not to like????

  • Report this Comment On October 04, 2011, at 5:27 PM, kariku wrote:

    Apple stalled

  • Report this Comment On October 04, 2011, at 5:31 PM, georgek7 wrote:

    What more do you guys want? The 4S is still a huge improvement. Siri took voice control to a whole new level. The best phone camera in the business just got way better. Notifications and mail functionally got a much needed improvement. The phone is faster and has better graphics. iCloud is incredibly promising. It can now be a world phone. It DID get 4G capability.

    Seriously, if they made the screen bigger or tweaked the exterior design a little, and called this new phone the iPhone 5, people all around would approve of this phone.

  • Report this Comment On October 04, 2011, at 5:36 PM, xetn wrote:

    A shot in the foot. Everyone was expecting the iPhone5 and I'm sure were all disappointed.

  • Report this Comment On October 04, 2011, at 5:36 PM, baldheadeddork wrote:

    Wickedly funny and sadly true: http://youtu.be/Gq-e0getf4M

  • Report this Comment On October 04, 2011, at 5:50 PM, eeeeps wrote:

    So are all the comments afterward about the lawsuits against Android, and Samsung. So there is copying in an industry... get over it and join the real world. The revenue and bottom line tell the whole story!!

  • Report this Comment On October 04, 2011, at 5:51 PM, luxetlibertas wrote:

    About everything wished for is there, in the iPhone 4S. There is not enough space here to enumerate even the most significant changes. Only the bigger screen and the thinner redesign that were leaked were not. And it is not called 'iPhone 5'.

    But a bigger screen is also less practical for carrying in your pocket. And thinner means its weakest point, battery time would get even worse (instead of better as with the 4S).

    I'm really impressed with all the improvements across the board, and the camera seems to be significantly improved.

    I expect that the iPhone 4S will have even more satisfied users than the iPhone 4 (the model that I have). And that is the most crucial thing: satisfied users.

    I do not doubt at all that the 4S will help propel Apple's stock price to new highs. I added to my position today.

  • Report this Comment On October 04, 2011, at 5:52 PM, baldheadeddork wrote:

    @georgek7: I don't know what you were watching, but the display of the 4S is the same as the old 4. Unless you count frames while playing Angry Birds you're not going to see an improvement in graphics. It also doesn't have 4G capability. (Sprint's advertised 4G isn't.)

    Notifications and mail made a move towards catching up to where Android and WP7 were a year ago.

  • Report this Comment On October 04, 2011, at 5:55 PM, toneill69 wrote:

    the iphone 5 was important but from an iphone buyer and stock investor.

    I had bulked up on stock but will likely sell and as for the iphone i have been holding out for- frankly i would prefer to wait - but my wife may not to for the one i promised her.

    At the very worst I will shed some stock until iphone 5 and will go for the $199 phone for my wife and perhaps myself but NOT the $399. I wiill think that i phne 5 is around the corner BTW need G4 I dont have good cellular recepiton at home ro work

  • Report this Comment On October 04, 2011, at 5:56 PM, traderpat9 wrote:

    within 6 months we will have a 6 & a 7 coming out. phones are obsolete within 3/4 months which just a tweak here & tweak there. no apple is not a buy-price way to high

  • Report this Comment On October 04, 2011, at 6:07 PM, RMartel wrote:

    It won't mean anything to investors for at least a couple of months because for some reason Apple is always viewed as a hardware producer, but the new Siri addition to IOS5 is of major significance. This isn't just some voice recognition gambit. Yeah, it uses voice recognition, but that's just Siri's front end. It's very useful and very real artificial intelligence. You don't just talk to the phone (or your iPad); it talks back to you when it needs more information or clarification, and then remembers your response for future reference. This is the first REAL smart phone.

  • Report this Comment On October 04, 2011, at 6:07 PM, kjbeck77 wrote:

    georgek7...

    you wrote... "if they made the screen bigger or tweaked the exterior design a little, and called this new phone the iPhone 5, people all around would approve of this phone."

    I completely agree with you! I said that very thing earlier today. So why didn't they do that? Everyone would be so excited right now. I think what they should do is deliver the phones with a piece of white tape and a marker, with instructions to put the tape on the iphone and write the number 5 on it. Then we'll all have exactly what we want!

  • Report this Comment On October 04, 2011, at 6:10 PM, sgt1917 wrote:

    Apple never said they were coming out w/ an "iPhone 5". We all got caught up in media hype. This was also, knowingly, a low-key event. So now we're all "disappointed" because of the perceived let-down. I say get over it. Apple is still the leader and an extremely strong player, and even better, iPhone 5 is still coming!

  • Report this Comment On October 04, 2011, at 6:21 PM, w2pm wrote:

    Apple did mess up and again on wireless. It has a real blindspot here with first failing to understand the importance of a robust network and then antenna design. Now it's the lack of 4G. No marketing genuis as substantial as Apples overcomes laws of physics.

    Their phone is uniquely fantastic but it requires the same data performance on general wireless as Wifi. 4g is low latency and high bandwidth everything iPhone needs to shine. Big mistake. For VZ users why buy this when the next one will certainly be 4g. The network is ready. Users are ready. Apple is not.

  • Report this Comment On October 04, 2011, at 6:28 PM, jdmeck wrote:

    What's more important? A new outside (big thrill) or all the new software updates and all the new things it can do? I'll take the later.

  • Report this Comment On October 04, 2011, at 6:28 PM, jdmeck wrote:

    The 4G network is far from ready.

  • Report this Comment On October 04, 2011, at 6:41 PM, PSU69 wrote:

    My 3GS dropped so many calls (ATT) it was silly. Store boss got a 4 for me (no charge upgrade). No help. Now back to BB on VZ. Much better. Disclosure, I own Apple stock! I loved the features of the 2 iPhone I owned yet the PHONE was a mess dropping calls like crazy. I live on the edge of Lake Erie and ATT here is not good.

  • Report this Comment On October 04, 2011, at 6:56 PM, georgek7 wrote:

    @baldheadeddork

    I never said the display was different. As for the graphics, the faster processor will allow for higher graphics capabilities. Yes, Android had the advantage in notifications before, but now it doesn't, and that's just one less thing that Android is better than Apple at. And my mistake, I confused 4G with double data speed. Either way, the phone's internet is faster.

    I also want to note that I'm not a big fan of Apple and don't use their products. I've used Android from day 1, but that doesn't make me biased towards it, I just have a better idea of what Android's strengths are.

  • Report this Comment On October 04, 2011, at 7:03 PM, ConstableOdo wrote:

    Why does everything that Apple does get the thumbs down by Wall Street and everything Amazon does get a thumbs up? Amazon's tablet offerings were nothing special and the stock got an $8 jump. Apple's iPhone offerings were decent and yet the stock fell. Sprint's $20 billion for four years offering for the iPhone is money in the bank for Apple. There's clearly a favored Wall Street bias for Amazon.

  • Report this Comment On October 04, 2011, at 7:11 PM, baldheadeddork wrote:

    @jdmeck - "The 4G network is far from ready."

    That's the party line from Apple, but it's a really dumb statement if you actually look into it.

    4G is "far from ready" today if you want to drive across Iowa and stream Netflix to your phone. But most Americans can get 4G in the place where they live and spend most of their time, right now. Over half the US population can get Verizon 4G in their home city today. By the end of this year it's going to be 185 million people. A year from now it's going to be in the range of 250 million.

    So what Apple says is a lie at worst, and needs to be said with an asterisk if you're feeling generous. But there's the other half of the equation. If you're buying an iPhone now you're taking a pass on 4G for two years. Even if you're not in a place with 4G right now, doing that is like signing a two-year contract for dial up because broadband hasn't made it to your town yet.

    But I think the worst part of this for Apple is that, now that everyone has all of the same phones, carriers are going to market the hell out of 4G because it's one of the only ways they can differentiate themselves. You're already seeing this with Verizon's marketing, and that is going to steer people towards 4G phones.

  • Report this Comment On October 04, 2011, at 7:23 PM, H3D wrote:

    When Apple introduce an LTE phone it will require a fundamental antenna change which, in the case of the iPhone 4, would imply a new body.

    What would be the point of having a complete new body now when the existing one is already best in class?

  • Report this Comment On October 04, 2011, at 7:26 PM, xmmj wrote:

    At first glance at the 4s, nothing blows the doors off.

    But I think if you look at this more closely things change.

    The advances - are they revolutionary or merely evolutionary? Is iCloud the most important battleground of today's digital world?

    http://jmmxtech.wordpress.com/

  • Report this Comment On October 04, 2011, at 7:39 PM, baldheadeddork wrote:

    @ConstableOdo - "Why does everything that Apple does get the thumbs down by Wall Street and everything Amazon does get a thumbs up?"

    The Kindle Fire exceeded all of the expectations people had for it. The price was lower and reviewers said it performed a lot better than everyone was expecting.

    The iPhone 4S disappointed for two reasons. First and foremost, Apple fuels this hype bubble with talk of its "magical" products. Magical is about the last word anyone would honestly use to describe the 4S. In automotive lingo this is a mid-cycle refresh. Second, and much worse, it highlights that Apple's cycle time is glacial compared to its competition. In the time it takes Apple to do a mid-cycle refresh, their competition has had at least one full product cycle, and is moving on to new technology that the iPhone won't have for another year.

    Remember that the iPhone 4 launched almost a year and a half ago. This is one of the richest companies in the world, full of the smartest designers and engineers you can hire (we are constantly told) - and this is the best they could come up with? Really?

  • Report this Comment On October 04, 2011, at 8:36 PM, Bolarmd wrote:

    I have been with Sprint for longest time. Atlast, I can have Iphone 4s. I am only disappointed with all the hype and speculation created by the media.

    Thanks Apple and Sprint.

  • Report this Comment On October 04, 2011, at 8:45 PM, scvalley wrote:

    See the comment at kingcapitalgroup.com about aapl 4-modified vs. 5. We believe it is a correct analysis.

  • Report this Comment On October 04, 2011, at 10:31 PM, lutece7 wrote:

    I think everyone is really underestimating what a ground breaking game-changer Siri is. I will be getting one.

    I am curious to know why it will be called the 4s and not the 5. There must have been some kind of reasoning behind this decision. Sure am curious to know what it was.

    The 4s is going to sell and the stock will go up. I am tempted to buy MORE Apple now because of all you people who are so dissapointed and have driven the price down. sure looks attractive at $356. And I started buying AAPL at $4

  • Report this Comment On October 05, 2011, at 1:01 AM, DBrown7 wrote:

    For those who are thinking of selling Apple because they were disappointed that an iphone 5 wasn't introduced today please remember this is stock selling at 15x trailing earnings and 12x trailing free cash flow. It has grown both at compounded rates north of 50% over the last 5 years. It's also a company with a balance sheet like none other in the world.

  • Report this Comment On October 05, 2011, at 1:07 AM, halwh wrote:

    It is interesting that people analyze this as if the iPhone is an isolated hardware product which is only evaluated on the basis of its technical specifications and the presence or absence of a new appealing external appearance. The iPhone is a platform for software and content whether that be in the form of Apps, music, books, video or the consumption of other forms of information. People desire a system that allows them to easily use their software and content anytime, anywhere and on any device they want. The geeks among us may enjoy the challenge of taking devices and software from multiple vendors and integrating them so they work together, but most consumers don't want to have to think about it. Apple offers a platform that handles the integration for you. Thats why Apple consistently has such high customer satisfaction rankings. Whats "cool" about Apple is the ease with which things work together. When you are promoting a software platform if you tie it to exclusive hardware you eliminate piracy. Ask Microsoft about their China experience.

  • Report this Comment On October 05, 2011, at 1:11 AM, bordereiver wrote:

    Yes, think it is still a buy, but I already have 325 shares at average cost of 308, so I didn't immediately jump on the 370-380 prices. Decided to sleep on it and check info like motley fool.

  • Report this Comment On October 05, 2011, at 1:12 AM, mlitinfool wrote:

    Apple announced as big a difference in the 4S as it did when is announced the 4 compared with the 3S The phone only looks the same. If it had been put into a different box, it would have been received with awe, based on the power and features compared to its older sibling.

    For gosh sake, you can manage half the things you do with your voice now. Don't for a minute overestimate the power of well done Artificial Intelligence.

    Nice machine!

  • Report this Comment On October 05, 2011, at 3:50 AM, NickFL wrote:

    No need to be disappointed. I think Apple know exactly what they're doing better than anybody else. Do people really want to buy a new phone every 6 or 12 months because the new one came out? Or is it better to keep their brand integrity?

    Look at BMW that makes a new redesign once in about 7 years and look at Huindai that makes a new model every 2-3 years. Which one is more desirable?

    I bought my 13" Macbook 3 years ago and the new ones still look the same.

  • Report this Comment On October 05, 2011, at 9:20 AM, midnightmoney wrote:

    O MF, why did you send that stupid message to my email box yesterday heralding the immanent release of the iphone 5 when there was to be none at all. Makes you seem like a bevvy of fingernail chewing sophomores popping off at the nearest sign of actual news. Either that or surprisingly and (uncharacteristically) opportunistic. You're better than that, MF--don't fixate on apple, or make news up and actually send it out to people in the form of email.

  • Report this Comment On October 05, 2011, at 10:30 AM, 48ozhalfgallons wrote:

    Who needs this crap?

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