Will Apple Sell Off After the Announcement?

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Sept. 9 (Bloomberg) -- In today's Triple Threat, Bloomberg's Jon Erlichman, ISI Group's Brian Marshall and KeeneOnTheMarket.com's Andrew Keene discuss the outlook for Apple ahead of its product announcement tomorrow. They speak with Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Bloomberg's own jon erlichman.

And at hurricane -- and andrew has the announcement from chicago.

Sift through the hype.

What are we really getting?

I think this is different.

The company is shifting its strategy.

If apple unveils a lower-priced iphone, immediately, everybody says hold on a second.

The company that sells one product and one high prices changing its tune?

People are going to wonder what is that price, and what kind of doors does that open in a market like china, where a lot of people have to pay the full pop for an unsubsidized iphone.

And you have to ask yourself how much it is going to cost them to make it.

What does that mean for profitability for this company?

There are some estimates that maybe this new lower-priced iphone will be made with component costs that are 65% less than the new iphone at the high-end coming onto the market.

Are they making the difference up there?

Are they taking advantage of the market opportunities ahead when they do battles with the likes of samsung?

Those are the kinds of questions we will be trying to explore tomorrow.

Great question.

Might they be using cheaper components?

Apple has always been known for the best of the best.

When you look at these possible announcements, margins, etc., what is your sense for this company, which is seeing its earnings down 10% year-over- year?

That's the real question.

We have seen the stock come down a couple hundred dollars since they launched the iphone 5. earnings are no longer growing year-over-year.

We actually think, with the introduction of the low-cost iphone, earnings could re- accelerate on a year-over-year basis.

This basically assumes the fact that china mobile is going to be a big opportunity for the country.

It could add 20% more to our iphone estimates next year.

We think it could ship almost 40 million units to the carrier in 2014 alone.

We estimate that apple will be able to remove roughly $30 of hardware costs out of the low- end iphone 4 relatives to the new iphone.

The new iphone could have gross margins and expect -- gross margins in excess of corporate average.

It could have gross margins in the low-40's. it is going to drive year-over- year reacceleration.

We think that will be a big deal.

$600 stock, strong buy on apple.

Let's say you're right and apple is able to move 400 million iphones into china.

That is a big number.

Ultimately, what happens to earnings?

We go from follow this year to a gain of, eight percent -- a gain of 8%? we think that they have about 740 million wireless subscribers . it is the largest carrier on the planet.

Of which about 140 million are 3g users.

We think that 40 million iphones could be shipped into that carrier a loan in calendar 14 -- that carrier alone in calendar year 2014. basically, the inclusion of china mobile could single- handedly drive earnings reacceleration.

I think there is the possibility it could get back to double digits.

That will be a tough hurdle.

Single-digit earnings year-over- year growth -- single-digit earnings, year-over-year growth, is in the cards.

This company will do close to $180 billion of revenue this year -- next year, that is here no other company in technology comes close to that.

Ibm and hp both do about $110 billion.

Apple is in a league of its own.

Even single-digit gains beat double-digit losses.

A long-term view.

Knowing that the stock traded down five of the past six product announcements, what is the trade here?

It makes me a little bit more bullish.

To listen to brian talk about the private margins go up on this low-priced phone -- everything i have heard is that this is going to crush their profit margin.

With the price of the phone coming out -- i guess it matters what the price of the phone is when it comes out.

I'm taking a shorter term play.

Apple will move $20 between now and the end of the week.

It has been very strong, almost too strong to short.

I am looking at a bare put, butterfly -- at a bear put.

It has hold off five of the last six announcements.

I think apple could trade down to 45. i am doing this for $115 for one month.

I think down at 45, 480, there will be buyers.

You might have swung up there on to the bull side -- swung a bear on to the bull side.

Do you think there are other people like andrew who need to hear the story retold?

I think so.

Apple was always the last company that was brought up the year ago.

That changed about two months ago.

It started becoming one of the first companies that we discussed.

Investor interest is certainly coming back into the market on apple.

The company is at new levels, from a valuation standpoint, new stock levels.

A sickly 100% of the products that generate -- basically, 85% of the company's profits come from the iphone and ipad.

100% of those profits will be refreshed over the next 12 months.

That is an important part of the story.

I could renew some investor interest.

-- that could renew some investor interests.

If they come out with a colored iphone, what are you going to get?

This text has been automatically generated. It may not be 100% accurate.


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