When Apple (AAPL -1.22%) unveiled the new iPhone 5c and 5s it received mixed reactions, causing the stock to tumble roughly 11% before the phones' successful release. What caused this doubt in Apple's new phones, what can we learn from it, and how can the iPhone 5s and 5c help you as an investor?
Why the negativity?
One reason the stock took a hit is that people seemed to expect Apple to release an iPhone 6 instead of a 5s and 5c. After Samsung (NASDAQOTH: SSNLF) announced its smartwatch, investors assumed that the 5s would have the same "shock and awe" effect. Instead, Apple released an improved iPhone 5, which is what the 5s is supposed to be, but not what investors wanted to see.
Apple also refused to announce the amount of 5c preorders which caused further doubt. For the past three iPhone installments Apple’s proudly shared the amount of preorders for its new gadget. The iPhone 4, 4S, and 5 had 600,000, 1 million, and 2 million preorders respectively. When Apple didn't disclose the number of preorders for the 5c, the only phone available for preorder, it was viewed as a potential sign of disappointing sales. As long as someone could order a 5c to be delivered on Sept. 20, it meant that the phone has not sold out like other Apple phones. This led investors to think that Apple might have overestimated the potential popularity of colorful, plastic phones. In actuality, because there were two new products being launched, it's reasonable to expect preorders of only the 5c to be less than the iPhone 5.
Despite the negativity, Apple sold more than 9 million new iPhones in its debut week. The drop in Apple's share price is a good example of how stocks can fluctuate based on assumptions instead of actual evidence and should be used as a lesson for investors.
The 5s potential
The new iPhone 5s has a few notable improvements that are relevant to investors.
First, the phone has Touch ID that allows you to access the phone through fingerprint scanning. Touch ID can be used to purchase songs on iTunes and easier purchasing for consumers can only mean good things for Apple's revenue.
The 5s also has a 64-bit processor, making it the most powerful phone on the market. This allows application developers to create more robust mobile apps and games for the new iPhone that they can't for any other current phone. This means that Apple's top-ranked app store could see even more revenue. That's impressive considering the company made roughly $9 billion in app revenue in 2012.
The other gadget makers
Right now the top three players in the mobile market are Apple, Samsung, and Microsoft (MSFT -1.27%).
Samsung announced its Galaxy Gear smartwatch on Sept. 4 and is the first of three to produce a smartwatch. While it is the first, the Galaxy Gear has been getting less than stellar reviews. The watch allows the wearer to take calls but can't do much else. At $399, the watch might be too expensive for its functionality. Despite these negative reviews, don't underestimate consumers' drive to have the latest tech gear. Being the first to make a technologically advanced product should be viewed as a good sign for investors looking at Samsung.
Microsoft recently made a deal to purchase Nokia's (NOK 2.03%) handset division. On Oct. 22, new Nokia products will be revealed for the first time since the announcement of its deal with Microsoft. I see Microsoft's purchase of Nokia's handset division as a positive sign for investors. It shows that the company is focusing more on succeeding in the mobile market by investing in a handset division. Microsoft has the technology to make great phones, but it's still not clear if consumers want them. Wait till the new products are revealed before making any new investment decisions based on Microsoft's mobile business.
Conclusion
With big launches and announcements from Samsung and Microsoft coming up, the competition in the mobile market is far from slowing down, but currently Apple is the best investment. With the success of its iPhone 5s, Apple has successfully launched a phone that will help grow its app revenue in the future and help the company maintain consistent earnings growth.
