Why to rate Apple stock a Buy? as 15% rise in iPhone sales expected

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Apple Inc. AAPL is all set for its largest production run of iPhones, as the company is betting that the new iPhone with larger-screen models will attract more consumers as compared to latest smartphones by Samsung Electronics Co and others.

The Cupertino based company is asking its main stream suppliers to manufacture around 80 million units of iPhones with large displays which are 4.7-inch and 5.5-inch respectively by Dec. 30, according to familiar sources. The Apple 5.5-inch iPhone screen may face an additional manufacturing complication if it uses a sapphire crystal, which is a durable but costly alternative to glass.

Last year we saw that Apple iPhone 5 initial order was between 50 million and 60 million for both the versions iPhone 5S and 5C.However, for the iPhone 6 with significantly larger display the initial production is estimated between 70 million to 80 million. Like the current iPhone 5S models both the upcoming models expected to arrive in September are expected to feature the metal cases in multiple colors. Samsung was the key smartphone manufacturer with its Samsung Galaxy S models of 4.8-inch display getting a huge success in 2012.

Apple is scheduled to announce its third-quarter results on Tuesday. Analysts forecast that Apple will announce iPhone sales of about 35.9 million in Q2 ended June 30. This figure will be up by 15% from a year earlier. The iPhone has been Apple’s biggest growth driver in the first six months of 2014. The iPhone has contributed more than 50 percent (57%) of the total company’s revenues. However, Apple will miss its second-quarter sales of 43.72 million units, as most of the customers hold back while waiting for arrival of new iPhone 6, due in September.

Apple’s iPad, is contributing only 18 percent to Apple net revenue and the device performed poorly in the last quarter. In comparison to $8.75 billion a year earlier it only contributed $7.61 billion to revenue. Apple CEO Tim Cook attributed these slow sales to inventory fluctuations; however International Data Corporation (IDC) revealed that it was effect of global slowed down sales of tablets.

Europe and the Americas overall contributes two-thirds of Apple’s revenue. But this time China is also a factor. Apple’s iPhone may get enough surge due to its recent partnership with China Mobile Ltd. China Mobile started offering iPhone in China earlier this year. In China large screen smartphones are also very popular.

The recent partnership between Apple and IBM under which IBM will sell Apple machines to its clients is also expected to give boost to Apple’s new iPhone.
Apple last year disappointed its investors as the company could only manage 7% rise in iPhone sales from a year earlier, and falling short of Wall Street expectations which was 15%.

Apple’s demands will be fulfilled by two main stream iPhone assemblers, Pegatron Corp and Hon Hai Precision Industry, also known as Foxconn.

Both Pegatron and Foxconn plans mass production of the 4.7-inch iPhone 6 model from next month and Foxconn (Hon Hai) will start production of the 5.5-inch iPhone version exclusively in September.

Apple IOS continues competition with Google’s Android operating system. In May 98 percent of Android smartphones sold globally had a display greater than 5 inches with a price tag of $400 or above ,Counterpoint Research reported.

Apple gears up for its upcoming iPhones as Samsung’s smartphone business is showing sluggishness in recent months and Samsung warned that its earnings for the third quarter may fall due to glut of unsold smartphones.

With the speculations of new iPhone 6 coming in September and more diverse market, we, too, rate Apple stock a Buy.

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