Apple’s growth hinges on China, new devices

Thursday, April 26th, 2012 11:37:49 by

(Reuters) – Sometimes even eye-popping results are not enough.

Apple Inc’s shares rallied on Wednesday on the back of another spectacular quarter that included soaring iPhone sales in China, but the naysayers are still asking if the most valuable American company might need yet another revolutionary product in the next
year to sustain its sizzling growth.

The skeptics certainly lost some credibility when the company’s shares surged 9 percent on Wednesday, adding about $50 billion to Apple’s market value, but some have not been silenced.

Their case is based on the law of large numbers – it is going to be more difficult for Apple to grow as fast the bigger it gets – and on the unforgiving nature of the technology business that can turn heroes into has-beens overnight.

The bulls point to emerging markets – in particular China, whose mobile market is the world’s largest and far from saturation – and upcoming products like a 4G-enabled iPhone 5 and the oft-rumored Apple TV, as sustaining astonishing growth such as the near-doubling
of net income in its second quarter.

But the bears, with a longer-term view, fear that Google Android devices will eventually put pressure on Apple’s margins in China as they have elsewhere, and wonder if Apple will be successful in tacking on another blockbuster consumer device to its portfolio.

Sales in China, particularly, are key for Apple to maintain its pace of revenue growth in the longer term, said Carolina Milanesi, consumer technologies analyst at Gartner.

"That’s the big question," she said, referring to market share in China. "From an affordability perspective, I think the opportunity is there to allow it to maintain that growth or at least not to see an immediate drop in sales."

In products, "TV seems to be one that everybody is looking at," she added.

Shorter term, over the next year, some investors and Wall Street analysts note that Apple’s sales of the all-important iPhone could flatten out over the next few quarters as consumers await the next version of the popular smartphone.

Apple’s own revenue forecast was more conservative than usual for the fiscal third quarter, a period during which an upgrade of the iPhone or iPad are unlikely.

"We note that iPhone product cycles appear to be getting increasingly pronounced, with fiscal first quarter and second quarter benefiting from very strong iPhone 4S product cycles in the US and China, respectively," said Toni Sacconaghi, analyst with Bernstein
Research, adding he expected the next couple of quarters to see "more sluggish unit sales."

But for now, sales of 35.1 million iPhones in the last quarter saw Wall Street analysts extend their love affair with Apple shares with a slew of hiked stock-price targets as concerns eased that the company was losing market share in the cut-throat smartphone

At least 14 brokerages revised their targets on the stock by $40 on average, a day after the company posted a quarterly profit that blew past Wall Street estimates.

Apple shares closed up almost 9 percent at $610 after touching an intraday high of $618 for an advance of 10.3 percent, the biggest single-day percentage gain by Apple shares in more than three years. The shares prior to the earnings had seen an unusual
two-week decline.

Apple, as 4.2 percent of the S&P 500, gave U.S. stocks a big shot in the arm on Wednesday, driving the Nasdaq to its biggest single-day gain of the year.

"Last night, Apple’s performance once again demonstrated how quickly Apple fever is spreading around the world and this trend continues to drive meaningful upside in the company’s financial results," said Topeka Capital Markets’ Brian White, who raised his
stock-price forecast to $1,111 from $1,001.

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