Apple’s New 5G IPhones May Be Left on the Shelf

(Bloomberg Opinion) - Apple Inc. has been in the limelight recently between the antitrust review of its mobile operating system and litigation with Fortnite maker Epic Games Inc. over its App Store. However, those developments pale in comparison to next week's main event for the company: the unveiling of its newest iPhones.
With all of the discussion about Apple's move to services and subscriptions, the tech giant's business is still dependent on its core hardware products, so Tuesday's presentation will be a must for investors. However, there could be a problem this year. The line's most touted feature - the fifth generation wireless feature - may not be ready for prime time.
The Cupertino, California-based company is expected to introduce four new iPhone models with 5G capabilities, as well as a different physical design and a wider range of screen sizes, Bloomberg News reported last month. Apple is already promoting the attributes of the new technology: earlier this week it sent the news media an invitation to the event on Tuesday with the cheeky pun "Hi, Speed" as the subject line, referring to the fast new 5G networks.
Investors are betting that the iPhones will be a blockbuster success and encourage consumers to upgrade. Apple stock is up more than 50% this year and now trades at 31 times its earnings for the next four quarters, almost double the historic five-year average of 16. These earnings estimates also contain high embedded assumptions. Morgan Stanley, for example, predicts that Apple's iPhone sales will grow 28% in the fiscal year ending September 2021. This would represent a dramatic turnaround from the 14% revenue decline in fiscal 2019 and the estimated 7% decline in 2020.
An increased rating would be fine if the new iPhones did well, but the murky reality of the current state of 5G networks could lead to overwhelming demand. PC Mag found the new wireless technology was often slower than 4G after testing it recently in 26 US cities. "5G results have been completely disappointing for every carrier." The Washington Post came to similar conclusions and found no speed improvement for 5G phones and, in many cases, slower numbers. There are several technical reasons for the poor results, ranging from using the slower 5G spectrum more frequently in the mid-band to building anemic coverage of the faster 5G millimeter wave service. The bottom line is that the 5G experience for US carriers is currently no better than 4G in most cases. It will take some time. So why spend hundreds of dollars on an upgrade now?
Industry metrics are already lowering expectations. A few weeks ago, John Stankey, CEO of AT&T Inc. said that the demand for the 5G iPhone may not be as high as expected due to the economic uncertainty caused by the pandemic and the less dramatic improvements in wireless speed. Previously, in a conversation with investors, Hock Tan, CEO of iPhone chip maker Broadcom Inc., answered a question about short-term trends for 5G with the words: “To be honest, we don't know how fast the ramp will go. 5G will occur. “It's pretty telling when the leader of one of Apple's largest wireless chip suppliers is reluctant to extol the promise of the industry's most talked about growth driver.
Even if the 5G network coverage was amazing, there is another problem. Almost all of the most popular mobile apps, including TikTok, Instagram, and FaceTime, work just fine on 4G networks. Right now, 5G is simply not needed. Yes, one day there will be new killer apps that require higher speeds but haven't arrived yet.
Amid the anticipation and excitement of Tuesday's product event, Apple investors may want to reassess their risks.
This column does not necessarily reflect the views of the editors or Bloomberg LP and its owners.
Tae Kim is a Bloomberg Opinion columnist on technology. He previously worked for Barron's in technology after a previous career as an equity analyst.
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