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Apple Episode 5S: The Empire Strikes Back


Apple's new iPhone had a huge weekend.

9 million!

That's how many phones Apple (NASDAQ:AAPL) moved this weekend, courtesy of the enormous buzz around the new iPhone 5S, which debuted on Friday to rave reviews.

That's a huge improvement over the 2012 iPhone 5 launch, which saw opening weekend sales of 5 million.

It also easily eclipsed Wall Street estimates, which topped out around the 8 million mark.

Apple said that fiscal fourth-quarter (ending in September) revenues would come in at the high end of its $34 billion - $37 billion guidance range, which implies a beat of the $36.1 billion consensus. The company also said that gross margins would come at the high end of its expected 36% - 37% range.

The importance of this victory can't be overstated.

The Rebound

First, after a string of disappointments, Apple finally seems to have rebuilt momentum in its iPhone business. Last quarter, the company delivered a big upside surprise in iPhone units, moving 31 million units vs. Street expectations in the 26 million - 27 million range. So this makes two straight quarters of happy iPhones news in a row, which could result in rising global smartphone market share, which could serve as a very effective psychological fulcrum for the stock.

Additionally, while the smartphone space as a whole is suffering from pricing pressures, Apple is doing an okay job of holding the line on margins.

And it now appears that the company will mark a second straight quarter of better-than-expected iPhone sales, particularly since the 5S was supply-constrained over the weekend.

The Competition Is Hurting

Recall that times are tough in the Google (NASDAQ:GOOG) Android market place. Unit sales growth is enormous, but Samsung (OTCMKTS:SSNLF), HTC (TPE:2498), and Motorola are all suffering from extreme competitive pressures, which is dragging down profitability across the board.

And just on Friday, BlackBerry (NASDAQ:BBRY) announced an unfortunate turn in its smartphone business: The company stated that second-quarter sales would come in at just $1.6 billion vs. a consensus forecast of $3 billion.

Finally, while Microsoft's (NASDAQ:MSFT) Windows Phone is technically the fastest-growing OS from a units perspective, it is still a blip on the radar in terms of market share, and that growth could be hampered near-term by revived interest in the iPhone.

What's Next?

Apple is soaring higher today as this quarter's results are in the bag, making the actual report something of a non-event.

However, keep a lookout for iPad sales numbers. Last quarter -- the same quarter that saw the iPhone resurgence -- was a bit of a stinker for the iPad as unit sales fell by 14%.

The iPad, while a smaller contributor to Apple's revenues than the iPhone (18% vs. 51%), is still vital from a strategic point of view. It is destroying the traditional Windows-centric PC industry from the inside out while giving Apple a bigger foothold within corporate IT environments. I suspect that an awful lot of PCs will be replaced with iPads and docking stations.

The Final Lesson

When people irrationally wait on line all night or even all week for a product, it's usually a sign of good things to come.

Also see:

Facebook and Twitter Drop 'Social,' Become Commercial Networks

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Disclosure: Minyanville Studios, a division of Minyanville Media, has a business relationship with BlackBerry.
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