Apple Investors Could Be Disappointed by 5G in 2020

Apple’s (AAPL) launch of the 5G iPhone is one of the main events its investors are awaiting in 2020. Samsung, Huawei, and other brands have already rolled out their 5G devices, and Apple is the only one lagging. Most analysts are upbeat about Apple’s 5G iPhone and think it will be worth the wait. However, some think otherwise.

On December 13, Gene Munster of Loup Ventures told CNBC, “The first year of 5G for the iPhone will be a disappointment for investors.” He added, “Ultimately, this is a massive opportunity for Apple, huge play on 5G, but it’s going to take a while for networks to roll out coverage.”

Munster’s reason for a bearish stance on Apple’s 5G rollout

Munster cited the inability of US carriers to provide extensive 5G coverage by next year, which could lead to a slump in iPhone sales. He said the drop in sales would depend “largely on the shoulders of the carriers who have talked a lot about the 75% coverage by the end of next year. I think that that is optimistic in the best case.”

While major wireless carriers in the US have rolled out 5G coverage, there are still certain limitations. Complete 5G coverage is likely to be available in the country only by 2025. T-Mobile recently launched its nationwide 5G coverage. However, it’s a low-band network. AT&T and Verizon have relatively faster 5G coverage, but only in selected areas. CNN quoted Mohanbir Sawhney, a professor at the Kellogg School of Management at Northwestern University, as saying, The future of 5G is very bright. It’s just going to take longer than the carriers want you to believe.”

Some other analysts also have a bearish view on 5G iPhones

Apart from Munster, there’s another analyst who isn’t so upbeat about Apple’s 5G plans. In October, Goldman Sachs analyst Rod Hall told CNBC, “The latency reductions in 5G are beyond anything a human can perceive; they’re really designed for machines.” Hall also stated, “In terms of bandwidth, what you’ll experience in terms of speed isn’t going to change much. This is mainly a technology change.”

Last week, Jun Zhang of Rosenblatt Securities indicated that Apple could lose market share in the first quarter during its transition to 5G due to the dominance of 5G smartphone brands in China.

Other reasons for the delay in Apple’s 5G plans

Besides limited carrier coverage, there have been several reasons for the delay in Apple’s 5G rollout. The technology is still in its formative stages, and Apple wants the 5G tech to mature before venturing into it. There are also challenges with making the smartphone’s technical specs and internal build more compatible with the 5G network. Apple would also have to consider a battery with more durability to support 5G.

It’s not just technical challenges—Apple also delayed its 5G launch due to internal issues. The company was mired in legal conflicts with Qualcomm (QCOM) and unable to strike a chord with Intel’s (INTC) modems. In July, Intel sold Apple its modem unit for $1 billion. The iPhone maker ironed out its differences with Qualcomm in April and now has a six-year deal with it. Apple is also working on an in-house 5G modem.

In September, LiveMint quoted Counterpoint Research’s research director, Neil Patel, as saying, “The complexity associated with integrating 5G from the RF Front End perspective is very high, and Apple’s failed attempt to do that with Intel modems with its spat with Qualcomm until April set back Apple at least by 12-14 months to integrate the 5G capability compared to rivals.”

Impact of 5G on AAPL

5G is a much-hyped development investors are expecting out of Apple in 2020. Even users are eagerly awaiting Apple’s 5G iPhone launch and willing to pay a premium for it. A survey by Piper Jaffray in September revealed that buyers are more excited about the 5G iPhone model than the iPhone 11, noted CNBC.

Wall Street also feels that 5G has the potential to take Apple’s stock price to sky-high levels. However, Munster has a different take. He believes Apple will continue its bull run in 2020 irrespective of its 5G launch. He has a price target of $350–$400 on AAPL.

We feel the 5G iPhone is crucial for Apple. A 5G iPhone would spur renewed interest among Apple buyers and revive the company’s flagging iPhone business. It’d be more favorable to launch the new technology once it gains some maturity, but the lack of a 5G iPhone could lead to a smaller market share in countries such as China.

As for Apple stock, 5G will be a key catalyst, but it could also rise to record levels in 2020 on the back of the company’s Wearables and Services segments.