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Apple Inc. (AAPL) “If it’s Not an iPhone” Ad Shows Earnings Confidence

Tim_Cook Apple Inc music

Apple Inc.  is one of the world’s largest companies, and the brand that drives its cash flow is one of the world’s most well known. The firm has grown into that brand and, in a new ad for the smart phone, shows off a Coca-Cola Company style confidence. 

https://www.youtube.com/watch?v=E3AIeOBTN0g

“If it’s not an iPhone, it’s not an iPhone” the new ad campaign states boldly. Apple will release its earnings numbers for the three months through June on Tuesday after the market closes on Wall Street. With its smart phone the only true “brand name” device on the market, those earnings already look good.

Apple is brand, all else is generic

No matter what label you put on a roll of tape it’s going to end up being called Sellotape, a tissue is a Kleenex and even if you buy a Tesla Motors Model X, someone is going to call it a Jeep. When you splash out for a Samsung Galaxy S6 Edge, hearing someone call it an iPhone might hurt, but it’s going to happen.

 

Apple will sell up to 250 million units of the iPhone this year, far ahead of any other firm in the market. It also occupies a position of great brand strength, particularly in the United States. People know what to expect from an iPhone in a way they don’t with phones from Samsung, or any other maker.

Apple is now leveraging that strength, and trying to make that idea concrete in the minds of those watching ads. The iPhone is the “brand name” device. All else is just generic knock-offs. The new ad shows that Apple is confident stating that idea almost directly. If it’s not Coca-Cola it’s just not Coca-Cola, if it’s not an iPhone it’s not an iPhone.

Apple bags premium earnings

While fans of Samsung and other major phone makers may dispute the idea that Apple is the brand name while other phone-makers supply generics, the earnings support the line that Tim Cook, Phil Schiller and the rest of the ad team at the firm are spinning. A report last week showed that Apple Inc. earned 92 percent of all profits in the smart-phone market.

Apple charges a premium for its phone, and it sells many more of them than the firms lining up against it. That’s market power, and it can only be compared to the complete market dominance of other brand names that became generic.

The soft drink market was completely owned by Coca-Cola. As with the phone market, if you take the second biggest player away, Samsung or Pepsi, you are left with a whole lot of nothing. In the phone market profits are zero, and losses appear, once the two largest firms are removed from the math.

Apple lines up for earnings

Apple earnings will arrive on July 21 after the market closes on Wall Street. The firm is expected to have had a great quarter in the three months through June. Demand for the iPhone 6 appears to have stayed strong. Sales growth might slow, but Apple is not falling behind by any means.

The reason that sales growth of the iPhone is slowing is simple. Most people that want to buy one already have one. It’s hard to sell most users a new phone every year, so iPhone sales are going to have to slow at some point. There just aren’t that many people in the world.

Sherri Scribner, who wrote July 6 report on iPhone sales for Deutsche Bank, says the iPhone’s growth “will underperform the overall market’s growth as we anniversary the iPhone 6 launch.” The mass success of the iPhone 6 means that sales over the next twelve months may not be as strong as hoped.

Andy Hargreaves of Pacific Crest released a new report on Apple on Monday morning. He said that the most important issue facing the firm right now is not iPhone sales, but future iPhone sales.

“Perception of FQ1 (Dec.) iPhone units is likely to be the biggest driver of AAPL in the coming months. If FQ1 iPhone units are flat or up, AAPL is likely to move higher. If units are down materially, the stock is likely to be stagnant or decline,” he wrote in the July 19 report.

Wall Street is looking for Apple to show sales of 45-50m iPhones in the three months through June. Amit Daryanani of RBC Capital says he reckons the firm sold around 46.5m phones during the quarter. Sherri Scribner of Deutsche Bank reckons the firm sold 50m units.

Mr. Hargreaves is looking for sales of 51.6m units, and notes that Wall Street’s consensus number is now at 47m units. If iPhone sales come in that much higher than Wall Street as a whole forecasts, earnings and sales should also come in higher.

Wall Street is looking for EPS for the third quarter to come in at $1.79 on sales of $49.1bn. Apple has a habit of beating the numbers it sets for itself, and those that Wall Street forecasts. The firm’s stock doesn’t always respond in kind, however.

Apple  shares rose strongly heading into the firm’s earnings report on April 27, but fell right after despite a big beat on Wall Street’s outlook and its best second quarter ever. Shares are once again rising as the market heads toward another release. Between July 12 and July 17 shares in the firm rose by more than 5 percent.

Being Coca-Cola

Coca-Cola Company had a few advantages over Apple with its product. The firm grew much more slowly than Apple and is just now fighting its way into some of the regions, like China, where Apple leads the market. It also has a product that it could convince people to drink more often.

Telling people to buy a new phone more often is unlikely to work at Apple, but the firm has a similar idea of margins as Coca-Cola. Instead of making the stuff Apple makes the “syrup” and outsources production. Coca-Cola used this model with actual syrup, Apple replicates it with design and software.

If it’s not an iPhone, it’s not an iPhone. Apple  has that right, and repeating the line is likely to shield core sales and perhaps bring a little growth to the firm. What Apple really needs to show in earnings reports over the next year is to show that it’s able to increase revenue per user.

Coca-Cola could do that by putting vending machines in offices and schools and making is seem like drinking more than one can of the black stuff per day was normal.

Buying an iPhone more than once per year is never going to be normal, but shelling out for its sister products, Mac, iPad, Apple Watch, Apple Music, and Apple Pay, all add to the sales that Cupertino is able to make to users.

Apple is the brand name in consumer electronics, as firms like Sony were in the past. If it’s not an iPhone, it’s not an iPhone. In order to make success last Apple needs to make the next big thing its own.

Sony failed at that for years, and now it’s started of its third big turnaround strategy in about five years. Tim Cook wants to avid that fate for Apple. For the time being Phil Schiller is busy cementing the place of the iPhone at the heart of American life.

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