Can a 5G iPhone supercharge Apple’s share price?

The deployment of the world’s next generation network has ushered in a new wave of smartphones. But with Apple [AAPL] yet to release its own 5G-compatible products, will it get left behind? And how is Apple’s share price likely to respond?

As telecommunication companies continue to deploy 5G networks around the world, many sectors are set to benefit — from autonomous cars to robot-powered factories. Consumers, meanwhile, will be looking to tap into the benefits that ultra-high-speed data can provide. To that end, hardware is already being released by numerous companies including Huawei, Samsung [005930.KS] and Xiaomi [1810.HK]. 

While Apple [AAPL] has largely been playing catch-up with its biggest competitors in Asia on this front, the company is set to launch three 5G-enabled smartphones this fall. A sure fire way to boost a share price that’s fallen 25% over just the past month?

The launch of these devices is expected to set off a sales rush, as consumers look to upgrade their current phones, in turn driving Apple’s share price upwards, Wedbush analyst Dan Ives recently told Yahoo Finance. He predicts that the company could sell between 215 million and 220 million of the next generation iPhone.

“To me, it comes down to the math: 350 million of 925 million iPhones worldwide are in a window of an upgrade opportunity in the next 12 to 18 months… you combine that with what’s going to be a $60bn annual services business, which I believe is worth $600bn, that’s what I view as a golden name to own now,” Ives, who has an outperform rating and a $400 share price target on the stock, said. 

Other analysts such as UBS’ Timothy Arcuri and DA Davidson’s Tom Forte also believe that the California-based company will benefit from the transformative trend. The analysts gave Apple’s share price bullish price targets of $355 and $375, respectively, in January, citing the anticipation for 5G phones working in the company’s favour.

“There is enough complexity and hype when it comes to 5G that we believe Apple can exploit this multi-year opportunity and generate positive smartphone unit growth for, at least, its next two product launches - fall of 2020 and fall of 2021,” Forte said.

Indeed, according to research seen by the Financial Times from Market Intelligence & Consulting Institute, 5G phones will represent about 18% of all new smartphone sales in 2020.

“There is enough complexity and hype when it comes to 5G that we believe Apple can exploit this multi-year opportunity and generate positive smartphone unit growth for, at least, its next two product launches - fall of 2020 and fall of 2021” - DA Davidson analyst Tom Forte

Form over function

The tech giant has been preparing for this since last year when it settled a long-running spat with Qualcomm [QCOM] — its chosen supplier for 5G modem chips — in April 2019 and then preceded to buy the majority of Intel’s smartphone-modem business for $1bn in July.

In a recent twist, however, Apple is reportedly scrapping its plans to use Qualcomm’s 5G antenna module because it “doesn’t fit into the sleek industrial design Apple wants for the new phone”, people familiar with the matter told Fast Company.

As a result, the company is reportedly said to be developing its own in-house antenna system to better fit into the iPhone’s slim design, but it is still not yet confirmed whether it will decide to launch with these. It’s worth noting that Apple doesn’t have the best track record when it comes to designing antennas. When the company released the iPhone 4 in 2010, it most famously had to offer refunds due to a signal dropping error.

While the iPhone maker may be able to build on the groundwork that Intel had started for its 5G modem business, its success in this arena will ultimately come down to whether it’s able to produce a product on par with Qualcomm’s.

Record revenues bode well

Despite concerns about Apple’s slowing iPhone sales, the company managed to report its “highest quarterly revenue ever, fuelled by strong demand for our iPhone 11 and iPhone 11 Pro models” CEO Tim Cook explained in its Q1 earnings statement in January.

The 7.7% year-over-year jump in product sales helped the company forecast revenue between $63bn and $67bn for the second quarter. However, the coronavirus outbreak has forced Apple to again revise its outlook, following its decision to shut down all its stores and offices in mainland China in February.

“As a result, we do not expect to meet the revenue guidance we provided for the March quarter due to two main factors,” the company said in a trading update. “The first is that worldwide iPhone supply will be temporarily constrained… The second is that demand for our products within China has been affected.” Apple did not provide updated guidance for the quarter.

“As a result, we do not expect to meet the revenue guidance we provided for the March quarter due to two main factors. The first is that worldwide iPhone supply will be temporarily constrained… The second is that demand for our products within China has been affected” - statement from Apple

Investors bullish despite Q2 revenue warning

The share price gained 89% in 2019 and continued to defy the broader market’s decline at the start of 2020, hitting a new all-time-high of $327.20 on 12 February, giving it a market cap of $1.43tn.

While the company’s share price has since fallen — it ended the month down 16% from its peak — it had shown signs of recovery in March. Despite market volatility being at its highest since the financial crisis of 2008, Apple’s share price jumped 9.3% on 2 March — its biggest rise in one-day in more than 11 years. Although since then of course, coronavirus has seen the stock dive along with most big tech, and the wider stock market at large.

Apple share price vitals, Yahoo Finance, 17 March 2020

With the launch date of a new iPhone tending to coincide with a spike in Apple’s share price, based on past performance analysis by MarketWatch, it is likely that the growing hype for its upcoming 5G phone line will be the biggest driver for the stock in the coming months.

Looking ahead, all eyes will be on Apple’s second quarter 2020 results, which are expected to be released on 5 May. According to Zacks Investment Research, the consensus earnings forecast for the quarter is $2.65 per share, while the stock has a consensus rating of buy among 43 analysts according to CNN.