How Much Could An iPhone 5se Add To Apple's Earnings

Feb 16, 2016

9to5Mac published a another article that reports Apple will hold an event on Tuesday, March 15, to announce the iPhone 5se, an updated 4” smartphone, an iPad Air 3 and new Watch options. While there have been reports since December about a new iPhone appearing in the March/April timeframe it appears more likely this will happen. According to sources the manufacturing of the new iPhone began ramping in January and will go on sale a few days after its announcement on Friday, March 18. (Note that I own Apple shares).

It will have been two and a half years since the company introduced the iPhone 5c and 5s so it is overdue for an update. 9to5Mac believes that the 5se will have A9 and M9 processors, and NFC chip for Apple Pay (which I’d be stunned if it wasn’t included), the iPhone 6’s camera system and always-on Siri activation.

The 5se could add about $0.25 in EPS
Steve Milunovich at UBS estimates that Apple sold 46.6 million iPhone 5c’s and 5s’ in fiscal 2015 out of a total of 231.2 million (20% of total iPhones) and his current projection is for the company to only sell 8.6 million in fiscal 2016 (4% of total iPhones).

The current 16GB iPhone 5s sells for $450 in the US, $503 in China, $550 in Great Britain and $568 in Germany. An updated 4” iPhone could do incrementally better indeveloping countries such as India and help its market share in China as it could draw in new iPhone customers vs. replacement sales in developed countries.

To estimate how much incremental revenue and profit Apple could generate from the iPhone 5se lets assume the following for 12 months after it is available:

• Sell 30 million iPhone 5se’s which would be about two-thirds of iPhone 5c and 5s sales in fiscal 2015
• 30 million would be 21.6 million more than what Milunovich is currently projecting for the 5c and 5s in fiscal 2016 and assume an average selling price of $500
• Cannibalize 5 million iPhone 6’s with an average selling price of $600
• Generates an incremental $7.8 billion in revenue
• At an operating margin of 25% vs. the 30.5% for the whole company in fiscal 2015 it would be $1.95 billion of operating profit
• With a tax rate of 25% it would be almost $1.5 billion of net income
• This would be an incremental $0.26 of EPS or about 2.5% of the Street’s fiscal 2017 estimate of $10

Depending on your assumptions on how many incremental iPhone 5se’s are sold and how many other iPhones are cannibalized they will change the EPS result but overall these seem to be pretty reasonable.

There are other benefits to selling more iPhones including incremental App sales, Apple Pay transactions, iPhone peripherals, other Apple products and future iPhone replacement sales. It will also put incremental pressure on the company’s iPhone competitors and could change the negative sentiment on its shares.

Source: Forbes