Apple Sweats Possible iPhone Summer Slowdown

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WithApple 's ( AAPL ) sixth-generation iPhone not expected until October, the Cupertino, Calif.-based company is potentially facing two quarters of restrained sales growth.

Apple's iPhone business accounted for 58% of the company's sales in the second quarter. Its iPad media tablet business was a distant second at 17% of sales, followed by Macintosh computers at 13%.

Many smartphone buyers held off on buying last year's model, the iPhone 4S, because it lacked high-speed 4G LTE wireless connectivity. That's expected to be in the so-called iPhone 5. Other potential iPhone buyers were disappointed that the 4S didn't sport a new design. The next iPhone is rumored to have a larger display and new chassis.

Analysts see a sales slowdown ahead of the new iPhone launch, which could impact fiscal third-quarter results, out late Tuesday, and September quarter results.

But will this summer slowdown be a pause that refreshes?

Some on Wall Street believe Apple could miss Q3 forecasts and provide conservative guidance for Q4. Janney Capital Markets analyst Bill Choi is among them.

Bracing For 'Miss'

"We are bracing ourselves for a potential miss and a guide down," Choi said. "We're heading into a bit of a pause, or a vacuum, before the iPhone 5 and the holiday season starts."

The next two quarters will be "choppy" for Apple, says Sterne Agee analyst Shaw Wu.

Last year, it only had one quarter of disruption before its iPhone 4S release in October. But that handset was seen as an incremental upgrade, and expectations are running higher for the iPhone 5, he says.

Apple hasn't said boo about its next iPhone but might make veiled references to an upcoming "product transition" in its earnings call Tuesday, Wu said.

More important than 4G will be a new design for iPhone 5, analysts say. The current iPhone 4S looks like the iPhone 4, which debuted in June 2010. Consumers are attracted to the latest fashions, whether that's clothes or portable electronics, Choi says.

"We're looking for a different form factor this time around to get the upgrades really moving," Choi said. Owners of the iPhone 4 will be coming off their two-year service contracts and will want a distinctive new device. If, as rumored, the iPhone 5 features a larger display and a new body, that could fit the bill.

A survey released Monday by ChangeWave Research finds "an unprecedented wave of advance demand for the next generation Apple iPhone."

Paul Carton, ChangeWave's vice president of research, said pre-launch demand for the iPhone 5 is "strikingly higher than we've seen for any previous iPhone model."

In a June survey of more than 4,000 consumers in North America, 14% said they were "very likely" to buy the new iPhone and 17% said they were "somewhat likely" to buy it. That compares with 10% "very likely" and 11.5% "somewhat likely" to buy the iPhone 4S in an October survey.

Meanwhile, Apple is facing increasing competition from handset manufacturers usingGoogle 's ( GOOG ) Android operating system. Samsung is the leading Android phone maker, but Google's recent purchase of Motorola Mobility gives it a hardware division.

Android passed Apple's iOS as the leading smartphone operating system last year, but its popularity will be put to the test by the iPhone 5, Wu says.

Apple could see a large number of disenchanted Android users switching to iPhone this fall, he says. Many of those users were attracted to cheap smartphone deals or wanted 4G or a larger display than the iPhone offered previously.

"We think there's a good chance that a lot of them will switch over to iPhone when their contracts are up," Wu said.

New Features

The new iPhone will run on iOS 6, which contains a host of compelling new features, such as turn-by-turn navigation, integration withFacebook ( FB ) andYelp ( YELP ) and Passport to store boarding passes, sports and concert tickets, loyalty cards and coupons.

Google is unlikely to secure similar deals with online services Facebook and Yelp because it competes with them using Google+ and Google Local, respectively, Wu says.

Also reportedly on the horizon for Apple is a smaller-size tablet, dubbed the iPad Mini by industry observers.

It would feature a 7- to 8-inch screen and would complement Apple's existing iPads, which have a 9.7-inch display. Speculation has that product coming out in October as well.

The iPad Mini also would give Apple a play in a market now dominated byAmazon ( AMZN ) with its Kindle Fire and Google's new Nexus 7 tablet.

Closer at hand, Apple is expected to launch its next Macintosh computer operating system, Mac OS X Mountain Lion, on Wednesday. That could give Apple's notebook and desktop computers a sales lift.

One area Apple could surprise Wall Street with its Q3 results is on its gross profit margin, which should benefit from favorable component pricing. Prices for NAND flash, memory and displays have been down lately, lowering the bill of materials for Apple's products, Wu says.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: AAPL , AMZN , FB , GOOG , YELP

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