Apple’s iPhone Air Could Be a Winner

With rumors that Apple plans to introduce a new product category under the iPhone Air moniker, it's tough not to get excited about Apple's near-term prospects.

Jan 9, 2014 at 3:15PM

The latest rumors for the ever-vibrant Apple (NASDAQ:AAPL) rumor mill is that Apple is planning to bifurcate its high-end iPhone lines into two lines. The first would be the standard continuation of the traditional iPhone line (perhaps dubbed the iPhone followed by a generational moniker), but the second line would sell under the iPhone Air brand. This is very similar to what Samsung (NASDAQOTH:SSNLF) does with its Galaxy S/Galaxy Note lineup.

Great news for Apple shareholders
While some may believe that Apple launching an iPhone Air would simply serve to keep the current Apple customer base, rather than meaningfully expand it, others believe that this serves as an incremental opportunity on top of the existing iPhone opportunity. While it is certainly likely that traditional iPhone buyers will move to the iPhone Air, there could be a meaningful opportunity to gain share from rival Samsung in the U.S., as well as in the Asia-Pacific region.

What's more interesting is that if this rumor is true (which, frankly, seems plausible enough), this is exciting from a revenue-per-unit and, therefore, a gross-margin-dollar-per-unit standpoint. It is very likely that an iPhone Air would command a premium ASP to the more traditional iPhone, so at constant gross margin, sales of such a device would drive hefty profit up. It's hard not to be excited.

The secondary effect -- weakening Samsung
It is imperative that Apple weaken its largest rival, Samsung, by taking as much of the high-profit-margin share of the smartphone market as possible. Not only does this shift more of the industry's profit dollars into Apple's coffers, but it weakens Samsung, as the company would likely take down spending to keep it as a constant percentage of revenue.

Now, that's not to say that Samsung would completely die and fade away, far from it, actually, but it is in Apple's best interest to significantly weaken Samsung as a competitive threat at the high end. Samsung can turn its attention to more aggressively taking share in the low end, where Apple doesn't really want to play anyway.

More Apple products per year
Another interesting aspect here is that introducing an iPhone Air lineup that is separate from the traditional iPhone (but equally high-end) is that Apple would be able to drum up excitement multiple times per year if it follows Samsung's model of two major releases per year. It's a brilliant strategy, and given Apple's keen understanding of how to build a brand and capture customer loyalty, it would not be a surprise to see this strategy implemented in 2014.

Foolish bottom line
Apple is a solid company with a strong brand and deep technical prowess. While the risk of smartphone commoditization is real, if there's any company that can rise above that and run a business with very robust profitability, it's Apple. It will be very interesting to see how market segment share in the high end shifts when, or if, Apple implements this strategy, but it's tough to imagine that it'll be pretty for Samsung. 

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Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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