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Apple iPhone delay snafu: So what if it were true?

Posted May 16th 2007 2:21PM by Georges Yared
Filed under: Forecasts, Launches, Apple Inc (AAPL), iPhone

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There have been rumors circulating around the blogosphere, which have reached the Street that Apple Inc. (NASDAQ: AAPL) might have to delay the release of the iPhone from June to October and the Leopard operating system, already delayed to October, delayed again until January. Apple's PR department has reiterated to the mongers that all is still on schedule.

Okay, great, but then this begs the question, "What if?'" What if Apple did have to delay the launch of these products, especially the iPhone? The reasons would have to be known as they would ascertain the ultimate and proper release date. Is it component sourcing that is an issue? Is it a software-quality issue? Did the beta-testing units developed a few glitches? The reasons would be put into one of two camps: Can Apple control the issue, or is the issue out of Apple's control?

If the iPhone is delayed, what happens to the stock short-term and to the earnings model? The stock would take a hit to be sure, as it did today when the rumors reached traders, before the retraction. Usually this is a situation of shoot first, ask questions later and indeed AAPL plunged to $103.42 (down 2.7%) today on the news.

Update: The iPhone release date of June 29 has been confirmed as of June 3, 2007.

Apple's stock performance has been excellent these past few years, but the stock is priced-for-perfection at these levels. A good $7-12 would get knocked off before any serious analysis emerged about the reason for the delay. If the situation is one that Apple could quickly and easily explain and demonstrate a definitive pathway to the release dates, the shares would recover about 75-80% of the initial decline. In spite of Apple's great performance recently, it would still receive "penalty box" treatment, thus not an immediate 100% recovery.

The earnings for Apple are not reliant on the iPhone's release for calendar 2007. I think estimates have not considered the potential $0.70-0.75 the iPhone could add this year with a June release. Analysts in general feel that the iPhone could contribute about a dollar for 2008 at the minimum. But as of yet, no one has been willing to be precise on the earnings potential for 2008.

One thing is for sure. If there were a delay in the iPhone's release date, the "expectations" of earnings beats and earnings raises would certainly get pushed out a quarter or two, so the urgency to be involved with the stock would lessen. Without the urgency factor and the "do I have a full position in Apple?" factor, the stock could lose a bit of its momentum and could be stuck in a trading range until definitive details and schedules are known. This is why Apple would have to be crystal clear in its communications if there were a delay.

The game of "what if" can be nerve-wracking as portfolio managers try to be timely in their purchases. The one thing I can firmly say is that Apple is a winning investment over the next 3-5 years as it has been the past three years. The whole beautiful product cycle is still early.

Georges Yared is the CIO of Yared Investment Research where he explores more growth stock ideas.

Tags: aapl, apple, delay, iphone, iphone delay, IphoneDelay

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