Expectations are high for Apple (AAPL -2.12%)heading into Mobile World Congress. There have been rumors about new iPhones with sapphire screens, the launch of a phone-based payment system, and most recently, technology to maintain and improve your health. As discussed in "Why Apple's Pullback is a Buying Opportunity," the shareholder base has changed significantly enough that, even if new products are not leaked or announced, any pullback from current levels will be small and short-lived. On the other hand, if details emerge about a new revenue stream, the stock could be off to the races. Lets explore what could happen.
Apple is rumored to be working on a new iPhone in two form factors that both offer sapphire screens. The additional cost of adding sapphire is likely in the $6 range, assuming GT Advanced Technologies (NASDAQ: GTAT) gets its Arizona plant up to production volume on par with prior iPhone releases. This would amount to 1% of the wholesale price of the iPhone, but is still cheaper than many third-party cases and considerably cheaper than the $200 replacement cost.
HTC recently announced its Advantage program, which offers free replacement of a screen broken within six months of purchase, and seems to be pre-empting a possible announcement by a competitor. HTC has been under significant financial pressure, but is trying to focus on low-end smartphones where an additional $6 per unit could make a competitive difference.
Apple recently filed a patent for an iWallet transmission method that uses two secure links between a device and point of sale terminal and the device and a back-end server using an encryption key. This type of secure transaction goes beyond Near Field Communications with the second, proximity-based link that people are speculating ties into iBeacon, a technology being used in Apple stores today.
According to Apple, there are 600 million iTunes accounts, each linked to a credit card. The timing is perfect because of the recent difficulties in securing credit card information at Target and other retailers. Payments are a wildcard for Apple because the profit inflow from a successful launch is too great to speculate, but a quick back-of-the-envelope analysis shows it could easily add $900 million in profit if each person charged just $100 through the service and Apple charged 1.5% for the transaction (Visa's typical intercharge rate without a per transaction fee).
Personal health technology
A patent published by the USPTO on Tuesday showed an Apple design for fitness tracking headphones that will monitor heart rate, perspiration levels, and temperature. Going further, they can be controlled by head movements, which could be a boon for proximity chip vendors like Bosch or InvenSense (INVN). Invensense has been successfully working with Samsung, but unable to penetrate Apple's supply chain. However, a recent problem with inaccurate readings from the Bosch accelerometer in the iPhone 5s may open the door. Most consumers need a reason to adopt new technology, and if a person is going to shell out a few hundred dollars for a new watch, it would need to offer something other than the time and weather.
There is substantial speculation about what Apple may announce, or leak, at the Mobile World Congress in Barcelona next week. Because of the dividend and low valuation, there is little downside for the stock if nothing new comes out, but the potential for significant upside if an announcement happens. It could be revolutionary, like an iWatch controlled by head movements, or it could be evolutionary, like a new payment system. We'll just have to wait and see.