One month after Apple launched the iPhone 5, analysts and market commentators are rapidly revising upward their forecasts and price targets for the technology giant. That optimism, however, could be premature if next week’s Q4 earnings report falls short of sales expectations. Investors will closely scrutinize headline numbers—particularly revenue and units sold—to gauge Apple’s performance heading into the holiday season.
Early estimates suggest Apple may have sold around 30 million iPhones and 20 million iPads this quarter, with quarterly revenue projections near $40 billion. These figures will be critical for assessing whether Apple meets market expectations as shoppers prepare for Christmas.
There is also widespread anticipation about a possible launch of a smaller iPad model, which could influence iPad sales volumes. The absence of such an announcement during the iPhone 5 launch has left questions about product timing and its effect on future demand.
Analyst sentiment is evident in market reactions: even Apple’s reported 5 million iPhone sales during the opening weekend were met with disappointment by some, causing a short-term drop in the share price. That reaction highlights how high expectations have become for the company.
Some issues—such as Apple Maps’ problems with iOS 6—provoked user frustration, but demand for the slimmer, lighter iPhone 5 largely overshadowed those software shortcomings. Nevertheless, concerns about supply constraints have put downward pressure on the stock at times.
(Source: CMC Markets)
Apple’s share price has continued its strong rise, but the gap between the current price and the 200-day moving average suggests there is room for disappointment if full-year results fail to match analyst forecasts. Historically, asset prices that stray far from long-term averages often revert toward the mean, which could limit near-term upside and increase downside risk.
Year-to-date, Apple’s stock climbed from about $411 at the start of the year to more than 60% higher, indicating the market has already baked in substantial positive expectations. Given that premium, investors should weigh the potential for a pullback should earnings or guidance disappoint.
Apple is not the only player commanding attention in the smartphone market. Samsung’s Galaxy S III has been a strong competitor, and the two companies remain entangled in high-stakes patent litigation. Samsung recently expanded its legal action to include the iPhone 5, alleging infringement of two standards patents and six feature patents.
With the global handset market valued at well over $200 billion, competition is intense. The Galaxy S III even outpaced iPhone sales in the UK during parts of the year, while Apple navigated supply shortages. Further disrupting supply chains, unrest at Foxconn’s Chinese facilities in September briefly halted production after worker riots, underscoring how operational risks can affect output.
The ‘old hands’: Nokia and Research In Motion
While Apple and Samsung battle for market share, long-standing handset makers Nokia and Research In Motion (RIM) have struggled to adapt to the rapid shifts driven by iOS and Android. As a result, Android and iOS together now account for roughly 93% of U.S. smartphone sales and about 83% of European sales.
Both Nokia and RIM have faced years of setbacks, and their stock prices fell sharply over recent months as they fight for the smaller opportunities left by Apple and Samsung. Low valuations have prompted speculation about break-ups or takeover bids, increasing volatility in their share prices.
RIM’s challenges include service reliability—highlighted by two network outages over the past year, including one on the day the iPhone 5 launched—which damaged customer confidence. Nokia, by contrast, has shown signs of life after launching its Lumia handset and forging a stronger partnership with Microsoft. That alliance could revive Nokia’s prospects, especially with Windows 8 on the horizon.
RIM’s European market share has declined from 12% a year ago to about 6.4% today, while Nokia’s share has edged up from 3.8% to around 5% year-to-date. Despite these shifts, both companies remain vulnerable as they attempt to turn their businesses around. The patents each holds may be a major factor in any acquisition interest.
Please remember that past performance of any investment does not guarantee future results.