iPhone 4S – Hardware unexciting, but software/services and price the key ::Macquarie Research,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


iPhone 4S – Hardware unexciting, but
software/services and price the key
Event
 Apple introduced its new iPhone 4S (US$199 for 16GB, US$299 for 32 GB,
US$399 for 64GB) on 5th Oct, along with plans to sell the existing iPhone 4
(8GB) at very low US$99 price (with carrier contract).
 While iPhone 4S hardware specs are uninspiring (no major upgrade till iPhone
5 mid-2012), we believe the new software/services (such as iCloud, Airplay and
Siri) are strengthening a compelling digital eco-system. Coupled with
increased operator support (Sprint) and Apple’s multi-pronged price strategy,
smartphone competition (particularly in mid to low end) is intensifying (bad for
HTC) while Apple volumes should continue to be robust, which is good for the
supply chain (TPK, Toshiba, Hon Hai, Murata, Samsung SDI, Pegatron etc.)
Impact
 Minor upgrades in hardware, software/services key. Hardware specs in
iPhone 4S are not too exciting in our view – 8MP camera, 1080p (5MP prior)
and A5 CPU (A4 prior). However, Apple’s key advantage continues to be its
digital ecosystem and software/services. 4S includes upgrade to iO/S 5 and
integration with iCloud services, providing the all-important digital eco-system
differentiator that (similar to AMZN) gives Apple a big edge over competition
and helps to “lock-in” users. Other noteworthy 4S features are Airplay, which
allows users to mirror the display of an iOS device onto a TV, and Siri, its
integrated voice assistance app (watch video). All these features demonstrate
the growing importance of software over hardware in our view and highlight
the growing difficulty of hardware differentiation in the high-end segment.
 Operator support a key weapon. 4S will combine both CDMA and GSM
services into one device, which means it can penetrate all operators with a
single device. Apple’s announcement with Sprint will have a major negative
impact on HTC, which has been Sprint’s largest supplier so far (carrying 4
HTC models) with Sprint accounting for over 30% of HTC’s US shipments
based on our estimates. Samsung is gaining share among US operators,
further pressuring HTC.
 Price strategy to drive volumes, intensify competition. In our view, Apple
is well-positioned at the high end with 4S but, more importantly, the lowpriced
iPhone 4 (8GB) at US$99 will intensify competition at the mid/lowend.
Thus Apple’s “multiple models to focus on high-mid-low end price”
strategy will drive volume growth (already ~26m+ iPhone 4S in 4Q11 per our
checks) and is good for the supply chain (TPK, Pegatron, SDI, Murata, etc),
but will pressure other handset players like HTC as Apple starts to creep to
mid/low-end smartphones.
 Airplay hurts game console makers. From a games perspective, as noted
by our analysts David Gibson/Jeff Loff, Airplay functionality, in tandem with
the iPhone 4S’s better processor, means devices like the iPhone can be used
as a games controller with output to a TV, essentially dis-intermediating the
console. This is negative for Nintendo (a year behind for similar functionality
from WiiU). Sony faces a similar issue, but is better positioned with the PS
Vita handheld, which has similar mirroring capability. Any Apple strength is
positive for Capcom, which is geared to Apple’s infrastructure.