Apple (AAPL) shares dropped 3.8% ($3.88) to close at $97.87 on Sep 25, 2014. Shares plummeted amid ongoing concerns regarding the newly released iPhone 6 and iPhone 6 Plus.
Apple’s new iPhones faced a couple of hiccups within days of a blockbuster debut. Apple’s updated iOS 8.0.1 reportedly disabled cellular services and access to TouchID fingerprint scanner. Some users reported bugs in the updated OS that made keyboards disappear suddenly. Also, there were reports of shortened battery life and slower Wi-Fi on account of the software update.
Apple apologized to its customers for the inconvenience and promised to take remedial steps at the earliest. Subsequently, the company has released a new update called iOS 8.0.2, which it believes will settle the issues caused by the earlier version.
Some users also complained that their iPhones, especially the bigger iPhone 6 plus, bended somewhat under pressure. Apple has said that if the phone bent with normal use, as defined under the guidelines for its official visual mechanical inspection, the customer would get a replacement for free. Otherwise, the customer would have to pay for the replacement.
Although these incidents tarnish Apple’s reputation, we believe that they will not hurt iPhone sales, going forward.
Apple unveiled the two devices at an event on Sep 9. The company along with carriers AT&T (T), Sprint, T-Mobile and Verizon Wireless — and authorized retailers — Best Buy, Target and Wal-Mart (WMT) — started selling the devices from Sep 19. Apple created a new record, selling more than 10 million units of the devices in the very first weekend.
iPhone contributes a significant portion of Apple’s top line. The bigger screen size of the new iPhone is comparable with many phablets available in the market from companies like Samsung, HTC and LG, which improves Apple’s competitive position.
According to a survey by Boston-based Gazelle Inc., a third of Google’s (GOOGL) Android users will shift to iPhone 6. The user number is up from a tenth a year ago, when Apple shipped iPhone 5S and 5C.
Per SquareTrade, a company that provides extended protection plans, Apple’s new iPhones are much more durable than iPhone 5S and 5C and Samsung Galaxy S5. However, the bending problem puts this observation in doubt.
Nevertheless, we believe that pent-up demand for the new iPhones will be the key growth catalyst for Apple over the next 12 months. We also note that the company is yet to launch the new iPhones in its fastest growing market — China. We believe that a China launch in late 2014 will significantly boost Apple’s top line and profitability for fiscal 2015.
Currently, Apple has a Zacks Rank #2 (Buy).
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