Here’s What Analysts Are Saying About Apple’s Upcoming Products

(Photo by Mario Tama/Getty Images)

Photo by Mario Tama/Getty Images

Now that Apple has confirmed that it is hosting a media event on September 9, analysts have started to ponder the potential impact that the iPhone maker’s next-generation products will have on the overall consumer electronics market, as well as the company’s bottom line. As you may have already heard, Apple is rumored to be unveiling two new iPhone models with larger screen sizes of 4.7 inches and 5.5 inches, as well as a wrist-worn wearable tech device that has already been dubbed the “iWatch.” The iWatch is widely believed to include multiple health-monitoring and fitness-tracking sensors that will work closely with Apple’s HealthKit health data storage platform.

Other rumors have suggested that some or all of the devices will feature sapphire-covered screens. One of the most exciting innovations that Apple may introduce on September 9 is a mobile payments system that uses a Near Field Communications (NFC) chip that is rumored to be included in the latest iOS-based products. According to reports from multiplemedia outlets this week, Apple has already acquired several mobile payments partners from the credit card, retail, and banking industries.

In a recent note to investors obtained by Barron’s, J.P. Morgan analyst Rod Hall outlined three possible ways that Apple could implement its expected mobile payments service. According to Hall, Apple will most likely enable iOS-based devices to hold “virtual” credit cards issued by other companies and take a small transaction fee every time a card is used. He also noted that Apple could “make a spread” on the price of a purchase by interacting directly with merchants, or even become a card issuer like Visa or MasterCard. However, Hall believes that the first scenario is the most likely since interacting directly with the merchants would be “outside of Apple’s wheelhouse” and becoming a card issuer would involve taking on credit card risk management.

WANG ZHAO/AFP/Getty Images

WANG ZHAO/AFP/Getty Images

Although Hall believes that Apple’s mobile payments service will indirectly benefit the company by further locking in users to the company’s platform, he doesn’t foresee much of a direct financial benefit from the implementation of the service. “With this assumption we conclude that the impact to Apple’s earnings would be immaterial,” wrote Hall according to Barron’s. “Even in the case that 100% of the 444m global iPhone user base used iWallet for 100% of their credit card transactions we conclude that Apple’s earnings would be lifted by a small 0.5% or $0.04.” Hall currently has an “Overweight” rating and a $108 price target on Apple shares.

Other analysts wondered if all the hype that has built up ahead of Apple’s media event could backfire, since anything less than a miracle product would be a letdown. In a widely publicized quote made earlier this year, Apple SVP of Internet software and services Eddy Cue told Re/Code that “we’ve got the best product pipeline that I’ve seen at Apple in my twenty-five years at Apple.”

However, some analysts have made it clear that they don’t share Cue’s confidence. In an appearance on CNBC’s “Squawk on the Street” on Thursday, Pacific Crest Securities analyst Andy Hargreaves expressed doubt that Apple’s rumored wearable device could repeat the success of its earlier products. “It’s really, really hard to get anything to be as successful as iPhone and iPad,” Hargreaves told CNBC. “I mean those are basically the two most successful consumer electronics products in history. And to make a dent with a wearables when every product that has come so far would have been a colossal failure on Apple’s scale is just a tough hurdle.” While Hargreaves believes that the upcoming iPhone 6 models will be highly successful, he noted that sales for devices have already been priced into the stock. For these reasons, Hargreaves recommended that investors sell some of their Apple shares ahead of the company’s September 9 media event, even while maintaining an “Outperform” rating and a $100 price target.

Source: Thinkstock

Source: Thinkstock

Wells Fargo analyst Maynard Um, who currently has an $89 to $99 valuation range and a “Market Perform” rating on Apple shares, took a similarly mixed view of the company’s upcoming product launches. While Um believes Apple will achieve record sales of 70 million to 80 million units for the iPhone 6 during the calendar year, he was less optimistic about the potential benefits of the mobile payments system and the iWatch. Like J.P. Morgan analyst Rod Hall, Um saw little direct financial benefit from Apple’s rumored mobile payments service. “We would not view this as potential material revenue generator where Apple takes a portion of the transaction or some form of fee,” wrote Um in a note issued on Thursday. “Rather, we believe this would be a tool to retain customer loyalty and stickiness to the Apple ecosystem.”

Um was also skeptical about the sales numbers for the iWatch. “While we expect the iWatch to carry a healthy gross margin (we model 50%), we believe the most bullish forecasts of 60 million in its full calendar year are a stretch and forecast nine million units in its first 12 months,” wrote Um. “Despite Apple’s broader appeal, we believe watches are more akin to jewelry and/or status symbols and, for that reason, believe the iWatch may not have as broad appeal as its other products.”

Piper Jaffray analyst Gene Munster took a far more bullish perspective on Apple’s upcoming product launches. Apple’s introduction of new products and services like the iWatch and mobile payments “will likely give investors optimism that the platform theme is expanding,” wrote Munster in a note obtained by Barron’s earlier this week. Munster has an “Overweight” rating and a $120 price target on Apple shares. On the other hand, Munster also cautioned that iPhone 6 sales might disappoint when compared to last year due to the “significant channel fill” for iPhone 5C units. In other words, many of the initial weekend unit sales reported for the iPhone 5S last year were likely used to replace depleted inventory. That won’t be the case this year, since the iPhone 5S is not being discontinued like the iPhone 5 was.

Finally, at least one analyst believes that Apple’s upcoming product launches will be more successful due to missteps made by its biggest rival: Samsung. At the ongoing IFA (Internationale Funkausstellung Berlin) consumer electronics show, Samsung recently unveiled its latest devices that included the Galaxy Note Edge phablet with curved side screen, the Gear S smartwatch, and the Gear VR (virtual reality) accessory for the Galaxy Note 4.

In a note obtained by Apple Insider, Cantor Fitzgerald analyst Brian White characterized Samsung’s product announcements as “underwhelming,” “rushed,” and “half-baked.” As a result, White believes Apple’s overall market position is now strengthened. “With the potential threat of this event now out of the way, we believe this just made Apple’s ‘Fab Fall’ launch a lot easier because the company’s #1 competitor does not appear well prepared to take on Apple’s new iPhones this fall,” wrote White according to Apple Insider.

It should be pointed out that Apple is about to enter two niche markets — smartwatches and phablets — where Samsung already has an established presence. While Samsung has yet to find much success in the smartwatch market, its line of Galaxy Note phablets are widely credited with popularizing phone-tablet hybrid devices. White predicted that Apple could erode Samsung’s share of this growing market segment, especially in the Greater China region, where phablets have proven to be especially popular. White has a “Buy” rating and a $123 price target on Apple shares.

Since the 4.7-inch iPhone 6 model likely won’t go on sale until at least September 19, it will be several weeks before anyone knows whether Apple’s latest product was a success or failure. However, after the media event on Tuesday, September 9, everyone should have a better idea about where Apple is trying to go.

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