Why the iPhone 5 Must Deliver
Douglas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As we approach the time of year again during which the Apple (NASDAQ: AAPL) faithful drink the proverbial Kool-Aid in anticipation of the next device that will surely transform their lives, the stakes may never have been higher. While Apple is coming off a big legal win over rival Samsung Electronics, competitors have not slowed down in their collective crusade to unseat the smartphone king.
Even this title is tenuous when one considers that smartphones that run on Google’s (NASDAQ: GOOG) Android already outsell the iPhone. Without exploring whether Google should really be considered the king of tech, when one figures in the impending launch of the new Windows Phone 8, a collaboration between Microsoft (NASDAQ: MSFT) and Nokia (NYSE: NOK), and other challenges faced by Apple, this launch may have more importance than anyone realizes.
The Release Backdrop
In order to explore the true importance of the iPhone 5 release, it is first necessary to put it into the proper context. The Apple rumor mill has set the launch date for the next generation iPhone as Sept. 21, but there is no word yet from Cupertino. By comparison, the new Windows Phone 8 is set to debut on Sept. 5. Assuming these dates hold true, this will give the new Windows phone a full two weeks to make an impact without having to compete against Apple’s latest.
While it is perfectly reasonable to expect many to wait on the iPhone release to make a decision on which phone to buy, the head start can do nothing but help the Microsoft/Nokia offering. If nothing else, the earlier release date should give reviewers plenty of time to form a solid opinion of the first new Microsoft-powered phone in quite some time. Lastly, with nothing to compare it to, the Windows Phone 8 will have as good a shot at building hype as it can hope for in iPhone country.
Of arguably equal importance is the fact that the judge in the Apple v. Samsung case is expected to rule on Apple’s request for injunctive relief around the same time as the iPhone 5 debuts. If Apple is granted the ban on Samsung products that it is seeking nearly simultaneously to rolling out its latest and greatest, it may have a chance to reclaim some of the ground that has been lost to the Android market.
What the iPhone 5 Must Include
First and foremost, Apple’s new smartphone must run on the 4G, or LTE, network. While the company seems to have skated by without a 4G option for nearly a year after the faster network was unveiled, consumers are not likely to be willing to wait another year. Likewise, given the availability of many larger-screened phones, Apple is nearly compelled to make the iPhone 5 larger. As an increasing number of users look to their phones to consume content, a larger display is critical.
Finally, the iPhone 5 needs to have some “wow factor.” The release of the retina display and the addition of Siri were barely acceptable advances, but it is time for Apple to reestablish itself as the must-have device. Particularly given the fact that many consumers were disappointed that the 4S was not the 5, a year later, Apple needs to justify the wait to those who held out. In other words, if the iPhone 5 turns out to be the iPhone 4S 2.0, consumers will be justifiably miffed.
Other features that make the wish list include: a replaceable battery, an HDMI out port and a tougher build that is just as attractive. It is difficult to say which features will actually make it into the finished product at this point, but failure to include the above upgrades should be seen as extremely dangerous. The patent verdict has given Apple a nice opening that it would be advised to capitalize upon.
Trading Apple
With Apple shares are trading just below all-time highs, there is serious risk involved in owning the stock at current levels. While some may argue that holding the shares into the release is the best way to trade the iPhone maker, given the stakes involved, there are likely better options. If the reception for the iPhone 5 is anything less than historic, the market could well use it as an excuse to price correct the high-flying shares. Expectations for the release are in the stratosphere as always, and at the current share price, the stock may be priced for perfection. In order to justify owning Apple before the big day, one would need to have a $700-plus price target on the stock by the end of the month. This is higher than the facts justify.
Mr. Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, and Nokia. 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. If you have questions about this post or the Fool’s blog network, click here for information.
