This week kicks off a second half of the calendar year that could prove transformative for tech giant Apple (NASDAQ:AAPL).
On Monday, Apple will commence its Worldwide Developers Conference in San Francisco with a keynote address that many hope will include some kind of product launch, possibly that of Apple's recently rumored smart home software.
This could be the first of several new product lines that Apple is set to
introduce in the coming months, which could also include an iWatch, a more advanced iteration of its Apple TV, some kind of mobile payments system, and who knows what else. Especially when taken in their sum total, these new products hold the collective potential to fundamentally reshape the world's largest technology company and help usher Apple out of the Steve Jobs era and firmly into the Tim Cook era.
But for all the talk of new multibillion dollar revenue streams, the iPhone remains the main financial engine powering Apple's money-making machine and should remain so for the foreseeable future. And thanks to some important, but largely under the radar, moves Apple has been making behind the scenes, the iPhone 6 could very well be Apple's most important growth driver in the months ahead.
Apple keeps adding carriers
It might be hard to envision exactly how Apple could continue to grow its iPhone shipments with the high-end of the smartphone market seeming saturated, but Apple has more potential growth levers to pull than many investors realize.
In a recent note to investors, Wells Fargo equity research analyst Maynard Um noted that Apple has continued to aggressively grow the number of wireless carriers its parts with to sell its iPhones over the past several months. By his count, Apple has managed to increase its carrier partners from 280 last October to 316 by mid-April, 15% growth in the past 7 months alone. This matters hugely for Apple's iPhone sales growth as its carrier partners are arguably the most important distribution channel Apple has.
Apple's retail operation currently consists of 424 retail stores across only 16 countries and counting. But even in markets where Apple has the greatest concentration of its iconic Apple stores like the United States, it still leans heavily on its carrier partners to generate the bulk of its iPhone sales. For example, in the U.S., Apple is estimated to sell about 15% of its total iPhones from actual Apple-branded stores, whereas a whopping 50% of iPhones sales came from AT&T and Verizon.
It's also worth keeping in mind that the overwhelming majority of Apple stores are in the U.S. and that as you venture further into emerging markets the proportion of sales generated through carrier partners skews even higher.
Setting up the iPhone 6
Taken in this context, you start to see how critical distribution channel carrier partnerships are for getting Apple's iPhones into the hands of consumers around the world. For Apple to continue to increase its addressable audience, it will need to keep establishing new relationships with carriers globally.
Thankfully, Apple still has a long way to go in this effort with there being over some 800 total wireless carriers in the world, though differences in size, location, and demographics make some carriers far more viable partners than others..
In a February interview with the Wall Street Journal, Apple CEO Tim Cook recently noted that he hoped to add 50 new wireless carriers as partners last quarter alone, a fact Um's figures suggest never came to fruition. Either way, Cook's statement alone certainly indicates that Apple has no intention of taking its foot off the gas when it comes to adding new wireless carriers to its ranks.
Between its rumored increased screen size and form factor redesign, the expectations for Apple's iPhone 6 are staggering with some research firms calling for 35-40% unit shipment growth. So while Apple's upcoming products will generate much the excitement about new growth opportunities that are headed Apple's way, investors should also understand that Apple's executive teams will be hard at work bolstering this somewhat under appreciated sales funnel, giving Apple investors everywhere one more reason to be very bullish on Apple in the months ahead.