Apple's iPhone 6 is likely to have a screen pushing 5 inches and that will lead to a big replacement cycle that may poach customers of Samsung. That theory is what has analysts getting wound up about Apple's earnings prospects.
In a research note Tuesday, Pacific Crest analyst Andy Hargreaves raised his price target on Apple shares to $635 and upgraded the stock. Hargreaves take is that a larger iPhone will drive a strong replacement cycle. He said:
We believe Apple can sell a 4.7" iPhone at a subsidized price of $299, which should generate incremental gross profit on replacement sales and attract new customers that had previously purchased Android phones specifically for a larger screen. If 35% of iPhone customers choose a larger iPhone when they upgrade and Apple is able to capture 10% of the large-format Android market, we estimate it could add $4.00 to our fiscal 2015 earnings per share estimate.
And Hargreaves isn't alone. Other analysts are all starting to salivate over an iPhone 6 replacement cycle. Despite the success of the iPhone 5s it's not to spot iPhone 4s devices in the field. Those older iPhones will move to the iPhone 6 level and a larger screen.
Jefferies analyst Peter Misek said in a research note:
We continue to believe the iPhone 6 will be a significant product cycle as it will fill Apple's "~5-inch" product gap. Our checks also indicate that initial Samsung GS5 monthly builds will be below initial GS4 builds, but the overall unit target for GS5's lifetime is the same as the GS4. We believe the combination of pent-up demand for a larger iPhone and possibly less intense competition from Samsung bodes well for the iPhone 6 launch.
Is the chorus of analysts right about the iPhone 6? Probably. As noted before, the Android launches of late have been lackluster. Apple just doesn't have to do much with the iPhone 6 beyond offering a larger screen. Other improvements are likely to be gravy.
On the consumer and enterprise side, it's likely the iPhone 6 will spur a replacement cycle. Keep in mind that Apple is the top mobile dog in the enterprise, but Samsung and Android are making headway. A larger screen is likely to cement Apple's iOS positioning for a few more years.