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Apple: New iPhone Coming?

Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

According to reports by different Wall Street analysts, Apple (NASDAQ: AAPL) may be planning to launch a new iPhone in the upcoming months. While Topeka Capital analyst Brian White believes it will see the market in May or June, Peter Misek from Jefferies has a slightly longer timeframe, expecting it by June or July. Numerous technology blogs and websites are supporting this rumor too, so it has been gaining a lot of steam.

What does it mean?

Based on what Apple has done in the past, most analysts were expecting the next iPhone – iPhone 5S or iPhone 6 – to be launched by the third quarter of the year, so this would be a surprise and a shortening of the product cycle.

 It could also be good news for Apple investors, as it would provide an optimistic explanation for the order cuts some analysts have observed form Asian suppliers. Apple has been reportedly cutting its orders for iPhone 5 components from its suppliers in Asia, and this has been interpreted as a sign of slowing demand for the product.

However, if Apple is truly planning to introduce a new iPhone by mid-year, the order cuts would be merely due to inventory and supply chain reasons, and it could dissipate the doubts regarding iPhone 5 sales. Cutting orders because a new product is coming is certainly better than having to cut them because of lackluster demand, and the stock could use some positive news since it’s been hit so hard over the last months.

On the other hand, if Apple is, in fact, transitioning to a six month product cycle, this would have important implications from different points of view. Recently launched products usually have smaller margins, so we could expect some margin compression from the new product cycle.

Apple is a gigantic corporation with an amazing degree of integration, but reconfiguring production, marketing, design, etc. is no easy task, and it could imply higher expenses and some bottlenecks from time to time.

Why Would Apple do it?

The plan looks risky and expensive, but it has some advantages too. Apple has been suffering the consequences of the never ending rumor mill regarding new launches, as consumers usually postpone their purchases because they are waiting for the new version of the product.

 Having too much demand in one half of the year only to see customers postpone their purchases in the other half is clearly not the best scenario from an efficiency point of view. Accelerating product releases could clearly help a lot with this problem, and it could smooth production more evenly through the different months of the year, which would probably a positive for margins.

From a commercial point of view, Apple could also get some benefits from this strategy. According to the rumors, the company will offer a wider array of choices with the new iPhone, including different colors and screen sizes.

Samsung and other manufacturers have been successfully capitalizing the popularity of Google´s (NASDAQ: GOOG) Android operating system and building smartphones with different specifications and price tags, but still supported by a deep  ecosystem and all the necessary applications. This has made of Android the leading platform for smartphones in terms of global market share.

Microsoft (NASDAQ: MSFT) is also trying to make some inroads into mobile via its partnership with Nokia (NYSE: NOK), and Asia could be a big part of that strategy. Nokia has recently made a deal with the biggest Chinese carrier, China Mobile (NYSE: CHL), for exclusive distribution of its Lumia 920. Although Apple has been in negotiations with China Mobile, it still hasn´t reached an agreement to introduce the iPhone in its gigantic network of more than 700 million customers.

Producing smartphones with different specifications, sizes and prices, could give Apple the possibility to compete more effectively in countries like India and China, where carrier subsidies are not such an extended practice as in the US, and pricing can be a big disadvantage for the Cupertino giant.

Bottom Line

A new iPhone by mid-year is not just another Apple rumor; it’s actually a very reasonable one. If this is part of a permanent decision to accelerate the product cycle, it could have negative implications on profit margins, but it could also be more efficient in terms of overall demand and sales, especially in emerging markets.

Besides, it could also show that analysts have been unnecessarily concerned about Apple cutting orders for iPhone 5 components, and this could mean some big news for investors as it could reverse the recent fall in the stock.

Overall, as long as Apple is focused on delivering the best and more beautiful products as opposed to making a few more bucks on each sale, the company is going in the right direction.

acardenal owns shares of Apple and Google. The Motley Fool owns shares of Apple, China Mobile, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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