Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Apple Earnings: Factors to Drive an iPhone Blowout

iPhone 5s. Source: Apple.

Investors are now less than two weeks from Apple's (NASDAQ: AAPL  ) fiscal third-quarter earnings release, which is slated for July 22. Last quarter, Apple reported a bona fide iPhone blowout. The 43.7 million units absolutely crushed the Street consensus of 38 million. For the current June quarter, the Street is expecting around 35 million iPhones sold. Can Apple deliver two blowouts in a row?

Last month, Morgan Stanley analyst Katy Huberty released a research note that suggested Apple could be trending toward 39 million iPhones sold. She based her estimate on her firm's proprietary AlphaWise Smartphone Tracker, which has proved fairly accurate with gauging demand in part by cross-referencing web search trends. Apple has posted figures higher than AlphaWise's models in four out of the past five quarters.

More importantly, what are some of the underlying factors that could help drive an iPhone blowout?

Another BRIC in the wall
Apple continues to make progress in growing its share of emerging markets. Last quarter, Tim Cook said the iPhone's strength was broad-based and that the company established a new all-time record for total iPhone sales in BRIC countries. Finally partnering with China Mobile (NYSE: CHL  ) drove sales to an all-time record in Greater China.

Within China, Apple continues to enjoy the China Mobile tailwind. The iPhone launched on China Mobile on Jan. 17. For the June quarter, the device will have been on sale for a full quarter. Additionally, 4G adoption (which is being driven in large part by the iPhone) is accelerating. China Mobile had 8.1 million 4G customers at the end of May, representing 1% penetration after four months.

Source: China Mobile.

In contrast, when China Mobile launched 3G service back in 2009, it took 14 months to get above 1% penetration, and the carrier's subscriber base was much smaller back then (almost 540 million in March 2010). Smaller rivals have also launched 4G service: China Telecom in February and China Unicom in March. Now that all three of China's carriers began deploying 4G before the June quarter started, Apple will benefit from 4G adoption.

Another carrier headwind
China Mobile isn't the only carrier that could boost results. Apple also inked a partnership with NTT DoCoMo (NYSE: DCM  ) last September. While that was several quarters ago, it takes time to fully meet pent-up demand within large subscriber bases. NTT DoCoMo is Japan's largest, with 63.1 million subscribers at last count.

The iPhone is incredibly popular in Japan. Apple grabbed 55% of the total smartphone market last quarter, as unit sales were up over 50%. NTT DoCoMo is certainly enjoying the iPhone. After bleeding subscribers for years to iPhone-carrying rivals Softbank and KDDI, the company immediately saw subscriber figures skyrocket.

Source: NTT DoCoMo.

Net additions aren't the only thing that NTT DoCoMo is improving on. Mobile network portability, or MNP, performance measures customer churn as customers switch carriers and keep their phone numbers.

Source: NTT DoCoMo.

All of this goes to show that the iPhone is doing extremely well on Japan's largest carrier. As the iPhone continues to proliferate within NTT DoCoMo's subscriber base, which is only just now beginning, Apple further strengthens its lock on the Japanese market.

Making iPhones more affordable
The iPhone 5c has underperformed Apple's internal expectations, as Tim Cook conceded in January when discussing product mix, it still represents Apple's strategic foray into more affordable price points. To that end, Apple launched a discounted 8 GB model in March targeting numerous international markets.

In markets like India, the new model was 11% cheaper. On top of that, Apple even relaunched the aging iPhone 4 in India, also going for low price points with an 8 GB model.

Two in a row?
Overall, Apple still has a lot of tailwinds that can help boost iPhone sales in the June quarter, despite being a relatively slow time seasonally. The March quarter's blowout was a pleasant surprise for investors. Can Apple do it again?

Leaked: Apple's next smart device (warning -- it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee that its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are even claiming that its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts that 485 million of these devices will be sold per year. But one small company makes this gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and to see Apple's newest smart gizmo, just click here!

Read/Post Comments (0) | Recommend This Article (3)

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.

Be the first one to comment on this article.

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: 3023696, ~/Articles/ArticleHandler.aspx, 8/27/2015 10:16:57 PM

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...

Evan Niu

Evan is a Senior Technology Specialist at The Motley Fool. He was previously a Senior Trading Specialist at a major discount broker. Evan graduated from the University of Texas at Austin, and is a CFA charterholder.

Today's Market

updated 1 hour ago Sponsored by:
DOW 16,654.77 369.26 2.27%
S&P 500 1,987.66 47.15 2.43%
NASD 4,812.71 115.17 2.45%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/27/2015 4:00 PM
AAPL $112.92 Up +3.23 +2.94%
Apple CAPS Rating: ****
CHA $55.19 Down -0.03 -0.05%
China Telecom Corp… CAPS Rating: **
CHL $61.34 Up +2.32 +3.93%
China Mobile CAPS Rating: ****
CHU $13.74 Up +0.50 +3.78%
China Unicom Limit… CAPS Rating: **
DCM $21.27 Up +0.66 +3.20%
NTT DoCoMo, Inc. (… CAPS Rating: ****
MS $34.30 Up +1.00 +3.00%
Morgan Stanley CAPS Rating: ***