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Why Apple's iPhone 12 Could Be a Runaway Hit

By Harsh Chauhan – Oct 16, 2020 at 12:30PM

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The smartphone giant has gotten quite a few things right that could help it set the sales charts on fire.

Apple (AAPL -3.00%) recently launched its newest iPhone 12 lineup, and 5G was the main talking point of the event -- but the new devices seem to be drawing mixed reactions from both Wall Street and consumers.

One analyst predicts that the iPhone 12 could be a disappointment -- in a survey of 1,000 existing iPhone owners, only 10% of the respondents expressed their willingness to upgrade. And in a poll conducted by Caijing magazine in China (Apple's second-largest market), a large chunk of the respondents (around 10,000) said that they won't buy the new iPhone 12.

There were 9,269 respondents who said that they will buy the new device, while 5,400 haven't made up their minds yet. The mixed reaction put Apple stock under pressure after the iPhone 12 lineup was revealed. But don't be surprised to see the new devices turn out to be a hit eventually, as they seem to tick the right boxes.

iPhone 12 and 12 Mini in blue

Image source: Apple.

The iPhone 12 lineup is priced well

The advent of the next-generation wireless standard has made smartphones more expensive thanks to higher component costs. For instance, Apple supplier Qorvo recently pointed out that it sees $5 to $7 worth of additional RF (radio-frequency) chip content in each 5G smartphone.

Flagship smartphones launched by Android OEMs (original equipment manufacturers) this year clearly indicate that 5G has made devices expensive. Samsung's 5G-enabled Galaxy S20, for example, went on sale with a starting price of $999 earlier this year, while the top-of-the-line S20 Ultra started at $1,399.

Apple has done a good job by bringing a 5G smartphone to market at $699 -- the iPhone 12 Mini, which sports a 5.4-inch screen. In fact, the entry-level device in the iPhone 12 line-up is priced identically to OnePlus 8, the cheapest 5G Android phone that consumers could have bought six months ago. As a result, consumers looking to make the jump to 5G won't have to pay through their nose if they are looking to either stay within the Apple ecosystem or purchase their first iOS-powered 5G phone.

What's more, Apple's tight pricing range for the iPhone 12 could also encourage potential buyers to upgrade to the next tier. Consumers looking for a bigger screen can opt for the standard iPhone 12, which is priced at $799. Power users can opt for the Pro (starting $899) or the Pro Max (starting $1,099) depending on the preferred screen size.

Some more tailwinds for Apple's 5G smartphones

Now that Apple has something for everyone with a variety of price points, it looks poised to take advantage of what's being called an iPhone "supercycle" that could see millions of users upgrade their existing devices. It is believed that there are 350 million to 950 million iPhones across the world that are ready for upgrades.

Wedbush analyst Daniel Ives has raised his iPhone 12 build estimates to a range of 75 million to 80 million units for the final quarter of the calendar year, which has traditionally been Apple's strongest quarter with respect to iPhone sales. The analyst was earlier estimating production of 60 million to 65 million iPhone 12 units, but increased the forecast after channel checks revealed a jump in production.

Additionally, Apple's strong market share in key markets such as the U.S. should also translate into impressive sales. Canalys estimates that Apple held 47% of the smartphone market in the second quarter of 2020, far ahead of Samsung's 23.2%. As Apple lacked a 5G device last year, Samsung ended up cornering 74% of the roughly-2 million 5G smartphones sold in the U.S. last year, according to Counterpoint Research.

The North American 5G smartphone market is expected to hit critical mass in 2020. Canalys estimates that 42 million 5G smartphones could be shipped in this market this year, followed by 92 million units in 2021. Ideally, Apple should win big from this potential jump in 5G smartphone shipments in North America, because it is the biggest smartphone player in the continent.

So it wouldn't be a good idea to write off the iPhone 12 just yet, as the new Apple devices could help it become a top 5G play in the future, thanks to the catalysts listed above.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool recommends Qorvo. The Motley Fool has a disclosure policy.

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