Fears of margin pressures are mounting going into Apple Inc. (NASDAQ:AAPL)'s earnings report on Wednesday, with a lot riding on how Apple's iPhone 5 performs. That's because the iPhone brought in over 47% of the company's revenue last quarter, and the iPhone 5 commands a 68% gross profit margin. If the iPhone 5 doesn't deliver as expected, the company's overall gross profit margin will suffer, and investors aren't going to be happy. I've already discussed one way the iPhone's average selling price will decline, but now I'll be focusing on why smartphone users would be less compelled to upgrade to Apple Inc. (NASDAQ:AAPL)'s latest and greatest smartphone, the iPhone 5.
Infrastructure lacking Aside from the larger four-inch screen, one of the main selling points of the iPhone 5 over previous generations is the fact that it offers global LTE coverage with download speeds as high as 100 Mbps. The problem is, LTE is such a new technology that the worldwide infrastructure to support it is currently lacking. According to the Global Mobile Suppliers Association, there are currently 145 LTE commercial networks available in 66 countries, which pales in comparison to the worldwide availability of 3G networks (254 carriers in 118 countries).
Quick math Considering how the iPhone 5 is available in 101 countries, a general lack of global LTE coverage could act as a major headwind to iPhone 5 demand. If a country or specific network lacks LTE, why would a smartphone user in that region invest in an iPhone 5, especially when there are excellent (and cheaper) alternatives in the iPhone 4 and 4S? Could the iPhone 5's larger 4-inch screen save the day? If a recent ChangeWave survey has any indication, the results are not looking promising. Only 52% of North American respondents were interested in a screen size between 4 and 4.9 inches. Will that be enough interest to drive strong sales of the iPhone 5?
Not Apple's fault? Perhaps it's not that demand for the iPhone 5 was weak, it's that global availability of LTE is still far behind 3G, giving consumers in LTE-lacking regions little incentive to purchase an iPhone 5 over an iPhone 4 or 4S. If that's the case, this will become one more reason why you should sell Apple today.