AAPL Apple Inc

By Tim Higgins 

Apple is set on Tuesday to unveil a 5G-enabled iPhone that has fueled sky-high expectations for the world's most valuable company even as uncertainty remains about how useful the next-generation wireless technology is for consumers.

The new technology, which holds the promise of internet speeds significantly faster than what is available for many smartphone users, has stoked anticipation that iPhone users will see a compelling reason to upgrade after millions in recent years held on longer to older devices.

The wave of new iPhone purchases could be enough to compare with 2014, when Apple unveiled a larger screen and sold a record number of devices, or 2017, when the company introduced higher-priced models with facial recognition leading to record revenue, analysts say.

Some investors are hoping it might even lead to the kind of dramatic growth seen in the iPhone's earliest days, when every annual iteration promised new technological leaps and must-have features.

"I believe it translates into a once-in-a-decade-type upgrade opportunity for Apple," said Dan Ives, an analyst for Wedbush Securities. He expects the new phone to help fuel iPhone sales this fiscal year that exceed the record 231 million devices sold in fiscal 2015, a boom driven by the iPhone 6 Plus, the first large-screen version of the phone. Sales of the iPhone rose 52% in the following 12 months compared with the previous year.

Apple shares have risen by more than 50% this year and the company's market value has soared above $2 trillion.

But it remains unclear how much interest customers have in faster speeds, especially during a pandemic when millions of people are working from home and are generally using home internet connections. The coronavirus delayed production of this year's new flagship phone, pushing back an event that has been held every September since 2012.

"Since 2014, the newest iPhone launches have felt more like ripples opposed to a wave," said Daniel Morgan, a senior portfolio manager who focuses on technology at Synovus Trust Co., which counts Apple among its largest holdings.

The prospects for 5G are still in the early stages of being understood by consumers. Most smartphone makers -- including Samsung Electronics Co., which has been selling 5G phones for more than a year -- have yet to showcase a killer software application to demonstrate why it is worth the money.

"5G utility is far from clear," said Cliff Maldonado, founder of BayStreet Research, which advises hedge funds and technology companies. "Samsung went over the top on 5G phones, and they got nothing for all the work they pushed." Mr. Maldonado said he doubts the number of iPhones sold will rise to the same level of the iPhone 6 and 6 Plus.

Although iPhone shipments have never surpassed the fiscal 2015 record, according to Apple figures and analyst estimates, Chief Executive Tim Cook sought to make up for those declines with higher-priced versions of the phone, such as the iPhone X that made its debut at almost $1,000 in September 2017.

The flagship phone with facial recognition and an edge-to-edge screen helped boost revenue by 18% from the previous fiscal year even as device sales rose by just 1 million units to 218 million.

Similar to that year, Apple on Tuesday is expected to offer a swath of iPhones with differing sizes and capabilities aimed at differing price points.

Wall Street analysts predict Apple revenue from the iPhone will rise 15% to $160 billion this fiscal year, which began Oct. 1. Analysts surveyed by FactSet on average don't predict iPhone revenue to outpace the record set with the iPhone X in the fiscal year that ended Sept. 29, 2018.

Mr. Cook also has tried to shift Apple's business more into digital services to make Apple less dependent on the iPhone, which makes up 50% of its sales. That strategy has faced headwinds as rivals have mounted a public fight against Apple's control of such services through the App Store.

Epic Games Inc., the maker of the popular "Fortnite" game, has sued Apple, claiming the company's practices are anticompetitive. Apple has denied those allegations and countersued, arguing Epic is greedy and wants to avoid paying a 30% commission for using its App Store that provides customers with a secure and private service.

(Dow Jones & Co., publisher of The Wall Street Journal, has a commercial agreement to supply news through Apple News.)

A Democratic-led House subcommittee last week issued a scathing report about the power big tech companies wield and accused Apple of exerting monopoly power through the control it holds over the software on its systems. An Apple spokesman said the company "vehemently" disagrees with the report's conclusions and that it doesn't have a "dominant market share" in any area.

Investors have largely shrugged off attacks on the App Store. Some are optimistic that a big marketing push by wireless carriers around 5G networks will push customers to consider a new device. Even if most customers don't understand the benefits of 5G, investor Mark Stoeckle said he expects the marketing to spur demand.

"The vast majority of those getting in line...are going to be: 'This is 5G, I need to get this,' " said Mr. Stoeckle, chief executive of Adams Funds, which counts Apple among its largest holdings. "Therein lies the brilliance of the marketing."

Write to Tim Higgins at Tim.Higgins@WSJ.com

(END) Dow Jones Newswires

October 12, 2020 05:44 ET (09:44 GMT)

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