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2019-10-13 22:37:57

Technology giant Apple (AAPL) led the market rally last Friday thanks to hopes over a US/China trade deal. While the stock reached a new high in terms of dollars and cents, it wasn't quite a market cap all-time record given the company's massive share repurchase program. The stock has been rallying lately thanks to those trade deal hopes, along with the possibility of a decent holiday quarter. Current expectations don't call for a record in terms of revenues or net income at this point, but there is a way that Apple can get closer to those levels. Today, I'll examine a few product launches that could still come in the coming weeks.

iPad Pro / iPad mini:

It was October 30th of 2018 when Apple launched the latest Pro versions of its tablet, coming with 11 and 12.9 inch screens. That would lead some to believe that the company could upgrade them this month, but I'm not 100% sure of the current tablet strategy. The last two Pro updates for the iPad have not been strict one-year anniversaries, so it's possible we don't see new versions until the Spring of 2020 or perhaps later. With this year's iPhones getting major camera upgrades, I'm guessing that will be the big thing for the next version of iPad Pros.

The traditional 9.7 inch screen iPad saw an upgrade this spring, but Apple came out with a new version this fall that had a 10.2 inch display. For that reason, I'm wondering if we'll see a second new iPad mini this year, as Apple tries to time the holiday season. With the company launching Arcade and TV+ services in the final portion of the year, it would seem logical that driving more hardware sales could bring more subscribers to these new services. However, you should remember that new device sales come with a free year of TV+, so that limits some revenue upside in the near term.

Any new Macs for the basic consumer?

We know there is one new Mac coming this fall, but with the new Pro version starting at just under $6,000, there won't be a ton of consumers rushing to buy it. Apple did provide some minor updates to other Mac lines earlier this year, but there's always a possibility that a new laptop is launched for the holiday period. The Mac mini was last refreshed a year ago, so that's the oldest one on the market, but it was four years between refreshes there, so I'm not sure if we'll see a new version soon.

Of course, there has been plenty of speculation for years that Apple will eventually launch a budget Mac that's aimed at market share, so if the company really wants to provide value to the consumer this fall, it would be the perfect time for that device. At this point, I remain skeptical about that given the company's overall premium strategy, but you never know.

A second generation HomePod:

Launched in early 2018, Apple's smart speaker has been rumored for a refresh for some time now. With an A8 chip and 1 GB of RAM being some of the key specs, there is definite room for improvement there. The HomePod came at a much higher price than its rivals from Amazon (AMZN) and Google (GOOG) (GOOGL), leading to what some described as soft sales. The price was eventually lowered, but a second generation would bring not only an updated version but the chance to lower the price of the first model even more. As the chart below shows, Apple is estimated to have just 5% of the US smart speaker market, so there is plenty of room for growth.

(Source: MacRumors article, seen here)

Apple TV:

With the launch of the TV+ service coming on November 1st, wouldn't it be perfect timing to see an update to Apple TV? The last three versions came in 2013, 2015, and 2017, so the pattern would seem right for this year to feature a new version. There is speculation that an upgrade would feature a major boost to the chipset, and that Apple is also working on a lower cost TV dongle similar to Amazon's Fire Stick or Google's Chromecast.

Adding it all up:

If we look at the estimates link from this article's opening, you'll see the current revenue average on the street is $86.54 billion if you exclude the outside of reality $104.97 billion high figure. The current average is up $280 million since the recent low on October 4th, but it's only up $60 million since the iPhone event back in September. As I recently detailed, that provides a strange disconnect between soaring iPhone production reports and what the street is actually expecting.

The current street average gives Apple an opportunity to set quarterly revenue and net income records, although a stronger dollar is providing a bit of a headwind over prior period results. If you look back at last year, the company reported December 2018 quarter revenues of $84.31 billion and net income of $19.965 billion. Those numbers were down from the holiday period in 2017 that saw record revenues of $88.293 billion and net income of $20.065 billion.

If iPhone sales are as strong as some think, then a record revenue quarter is in reach. However, given the lower sales price on the 11 this year as well as discounts to legacy phones, plus the free year of Apple TV+, there might not be a net income record if margins don't rise a bit given increased spending on the operating side. The drop in Apple's cash pile combined with lower rates also hurts some other income items that have boosted the bottom line quite nicely in prior periods. Earnings per share will likely set a record, thanks to the buyback, but net income is primarily what drives free cash flow.

In the end, Apple shares recently high a new high in dollar terms thanks to positive thoughts over US/China trade and the hopes for a record holiday sales quarter. Management could certainly help the situation by launching some new products, especially in an effort to drive subscriptions for its new services launching this fall. While the Mac Pro is supposed to come soon, we could see some surprises elsewhere, which could give investors even more optimism heading into year's end.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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