3 Reasons Why the iPhone 6 Will Be a Blockbuster Product

It seems that investors are losing confidence in Apple (NASDAQ: AAPL  ) . The stock has underperformed the NASDAQ Composite index this year and is down over 4% year-to-date. Also, despite an increase in the institutional ownership of large-cap stocks, institutional ownership in Apple shares is down to a five-year low.

While the likes of Google, Amazon, Hewlett-Packard, and Microsoft are witnessing all-time high institutional ownership, Apple has dropped to its lowest point since 2009. Morgan Stanley analyst Katy Huberty recently said: "[Institutional investors] hold less concentrated positions in Apple than in the past with the top 30 holders allocating 2.2% of their fund to AAPL, compared to a high of 4.1% in the last five years and Apple's current 2.9% weighting in the S&P 500."

This points to the fact that institutional investors aren't confident about Apple. Although Apple's stock has been range-bound in the $490-$550 range for quite some time now, it's not the right time for investors to turn bearish on the stock.

Apple is due to launch the new iPhone 6, and it could be a game-changer for the Cupertino-based tech giant. Let's take a look at the reasons why the iPhone 6 could be a massive leap forward from its predecessor.

Driven by replacement sales
In fiscal 2013, Apple derived roughly 53% of its revenue from the iPhone. Thus, it's obvious that the success of Apple largely depends on how the iPhone 6 is received in the market. Over reliance on one product can be risky for many companies, but Apple is an exception. It's a well-known fact that Apple has a very loyal fan base, and a lot of people will buy the new iPhone just to replace their older Apple phones. In fact, according to Statista, nearly 70% of Apple's iPhone sales may come from users looking to swap older iPhones with the iPhone 6. This figure can rise to about 80% in 2015.

Source: Statista.com

The increasing magnitude of replacement sales should ensure that Apple's next iPhone should begin with a bang. If the company brings new technology and arms the iPhone with a bigger screen, then it can bring users from other platforms into its fold as well.

The Galaxy S5 does not look good enough
Every year, tech fans eagerly wait for flagship devices from Apple and Samsung (NASDAQOTH: SSNLF  ) to hit the market. However, the specifications of Samsung's Galaxy S5 aren't great, so it might not be a huge hit. This certainly bodes well for Apple, as the Galaxy S5's lack of new features will push more customers toward the iPhone 6.

Several factors indicate that the Galaxy S5 will not be a hit. First, the phone is unattractive. Samsung may have gone too far to give the S5 a unique look (or maybe to avoid another lawsuit). The stippled backside of the phone hasn't helped Samsung gain any fans, as people across Twitter and Facebook have compared the Galaxy S5 to a band-aid. This clearly proves that the phone's design hasn't impressed tech enthusiasts.

The phone's lack of features include exclusion of optical image stabilization from the camera and no significant improvement in the TouchWiz software. This has set up the iPhone 6 for a blockbuster launch, and it won't be surprising if its sales smash all estimates.

Bigger and better screen
In November 2013, Apple signed a deal with GT Advanced Technologies (NASDAQ: GTAT  ) . Under this deal, Apple loaned GT Advanced Technologies $578 million to install and operate the world's largest sapphire-crystal manufacturing plant. Although Apple didn't promise to buy any of the sapphire that GT Advanced Technologies produced, reputed sources like Forbes and Canaccord are confident that the iPhone 6 will come with a sapphire display that will make the screen scratch-proof.

In addition, rumors suggest that the iPhone 6 will have a 4.7-inch screen. A larger-screen iPhone is just what Apple needs to gain market share from high-end Android smartphones. As noted by Fool analyst Bill Shamblin, bigger screens can increase iPhone sales by 16%, or 24 million units.

Conclusion
Apple hasn't had a great time this year and it looks like Wall Street is also not very confident about its prospects, as the five-year-low institutional ownership stats suggest. However, it would be a bad idea to exit the stock at a time when Apple is probably going to launch revolutionary, rather than evolutionary, products such as a bigger iPhone and an iWatch. 

The biggest thing to come out of Silicon Valley in years
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

 


Read/Post Comments (4) | Recommend This Article (1)

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 April 04, 2014, at 2:27 AM, Interventizio wrote:

    A 4.7" phone? And that's it? That's the way for Apple to stay ahead of this time? The 4.7" screen dimension was popular somewhere between 2012-2013, then the market switched to 5"+ screen sizes.

    Granted it's undervalued but just compared to past results and not by that much after all.

  • Report this Comment On April 04, 2014, at 7:23 AM, khaledmrd wrote:

    Iphone 6 or iphone Air

    Iphone Phablet

    Ipad 12" with MS Office for Business

    Mac or ipad Convertible

    IWatch

    ITV

    MORE services

    All these could be big big big in 2014

  • Report this Comment On April 04, 2014, at 11:35 AM, AceOfSaves wrote:

    @Interventizio

    The 4.7 inch screen is not meant to be an innovation but rather to entice consumers who are drawn to bigger screen phones. This screen size increase should help capture some of that market share.

    I, personally, like the compactness of my iPhone as it fits nicely in my pockets while leaving room for other stuff. I think the increase to a 4.7-inch screen is an acceptable compromise for me but I prefer not going over 5 inches.

    @khaledmrd

    Let's not get carried away now. I'm long Apple but out of all the possibilities you mentioned, I'm only expecting the iWatch and iPhone 6 to come out this year. Maybe the bigger screen iPad too but less so.

  • Report this Comment On April 06, 2014, at 12:41 PM, BilboBaggins wrote:

    I am pretty happy with my pocket sized iphone. I do not think the bigger screen size will make much difference in market share. Samsung and other competitors have had bigger phones for a few years and they have failed to eat into apple's market share - I don't see how the situation will be reversed when apple tries to imitate them.

    Nor do I see much future in an iwatch unless it is truely amazing. I am 38 and have never worn a watch. They are uncomfortable and kind of ugly. I would bet that most people under 40 would prefer to not have a watch. There might be some market among old folks if the watch can do some super health care related tricks but I would not bet on it.

    The sapphire screen might be cool but it is not an amazing game changer. Nonetheless I am long aapl. They are a great company with a ton of cash and they make great products. They don't need game changers. They will do very well in the long run if the game doesn't change.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2901999, ~/Articles/ArticleHandler.aspx, 8/21/2014 8:37:50 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement