Apple to shrink connector for iPhone 5; Wall street has low expectations for quarter results

Apple Inc's  new iPhone will drop the wide dock connector used in the company's gadgets for the best part of a decade in favour of a smaller one, a change likely to annoy the Apple faithful but which could be a boon for accessory makers.

The iPhone 5, Apple's next generation iPhone expected to go on sale around October, will come with a 19-pin connector port at the bottom instead of the proprietary 30-pin port "to make room for the earphone moving to the bottom", two sources familiar with the matter told Reuters.

That would mean the new phone would not connect with the myriad of accessories such as speakers and power chargers that form part of the ecosystem around iPods, iPads and iPhones, without an adaptor.

That means new business, analysts say.

"It represents an opportunity for accessory vendors," said Pete Cunningham, London-based analyst at technology research firm Canalys. "The iPhone connector has been a standard for a long time now and I would expect the same to be true for a new connector, should Apple change it as expected."

Apple did not immediately reply to an emailed request for comment.

Tech blogs have long speculated on the demise of the 30-pin connector, which at 21 mm wide takes up a chunk of space, especially as the latest technologies such as microUSB offer more power in less space.

They say that a smaller connector would give Apple more scope for new product designs or a bigger battery, or simply to make ever smaller products.

Switzerland's Logitech, one of the biggest makers of Apple speakers, declined to comment.

But some enterprising vendors in China have already begun offering cases for the new phone, complete with earphone socket on the bottom and a "guarantee" the dimensions are correct.

For some in the peripherals industry, the change could open doors to new business.

"iPod docking speaker sales have been declining for one or two years," said an employee of a Hong Kong-based company that designs speakers especially for Apple products.

"My previous factory is a lucky one. They shifted the focus to Bluetooth speakers, which proved a wise decision now," the employee said, speaking on condition of anonymity.

"It looks like while iPod speaker sales are going down, Bluetooth speaker sales are going up."

Happy to upgrade?

Apple has already said that some users of older models of its Macbook computers won't be able to use the latest operating system to be announced soon, but analysts think it will be kinder to mobile gadget users.

"Apple needs to find a solution not to disappoint their current clients who want to upgrade to the new iPhone but are tied to an expensive accessory that have bought," said Franciso Jeronimo, London-based analyst at technology research firm IDC.

"I believe Apple will come up with some sort of adaptor so the new iPhone can be used with previous connectors."

It could be a difficult change for Apple to manage, even with an adaptor.

"With a smaller connector, what am I going to do with my loudspeaker at home and the fitness pack that I use when I go to the gym? That's the question," said 24-year old Travis Tam, who owns an iPhone 4 and works as an account executive at a social networking company in Hong Kong.

"I feel that the premium gap between the next iPhone 5 and newest Android models is getting much smaller these days. That will mean that details such as having a smaller connector will mean more in whether I will continue to use an iPhone and switch to other Android phones."

A salesman surnamed Chan at an Apple reseller in Hong Kong thought a smaller connector would be a "pain", and would spoil the clean lines and seamless connectivity that is Apple's trademark.

"There are ways around it as some of the speakers have an audio input point that can be connected directly to any iPhone with a earphone jack. It's not a very elegant way of doing things, but it's an alternative," he said.

In the end though, Apple fans are Apple fans.

"I don't think it will stop Apple consumers from buying the new gadgets," said C.K. Lu, Taipei-based analyst at research firm Gartner. "Many companies are interested in developing accessories for Apple because Apple users are more open and willing to buy accessories."

Apple Inc faces an unusual phenomenon when reporting earnings this time around: low expectations.

Few are expecting the world's most valuable technology company -- which surpasses Wall Street expectations with near regularity -- to deliver a bumper quarter once more on Tuesday.

The main reason: consumers holding out for the new iPhone.

Apple may still surprise market watchers, but many Wall Street analysts and investors remember how chatter over the launch of a new iPhone last year caused Apple to miss quarterly expectations in the fall, for the first time in years.

The iPhone 5 is only expected to hit store shelves around October -- just in time for the holidays -- with a thinner, larger screen and fine-tuned search features. Couple that pre-launch lull with slowdowns in Europe and China, Apple's biggest markets outside of North America, and sentiment on the Wall Street darling is more muted than many can remember in a while.

"No longer is Apple the company that beats every time," said Tim Lesko, portfolio manager at Granite Investment Advisors, which owns Apple stock. "I expect Apple to beat Apple's guidance, but I don't know whether they will beat Wall Street's guidance."

Tony Sacconaghi, analyst with Bernstein Research, sees a reasonable chance Apple will miss expectations on revenue, citing "macroeconomic weakness in China and Europe, a product cycle lull in the iPhone, a later than expected introduction of the new iPad into China, and the late quarter introduction of new Mac notebooks."

Any hiccup in demand for the best-selling smartphone can have a big impact on both revenue and profits as the five-year old device accounts for nearly 50 per cent for Apple's revenues. And it comes at a time Samsung and other manufacturers that use rival Google Inc's Android software are chipping away at its market share.

Apple is expected to report fiscal third-quarter earnings of $10.35 a share on revenue of $37.2 billion, according to Thomson Reuters.

Top Wall Street analysts are betting the numbers will undershoot that. Apple may miss the average sales forecast by about 0.2 per cent, according to Thomson Reuters Starmine's SmartEstimates, which places greater emphasis on timely forecasts by top-rated analysts.

Ipad's launch in China

But some analysts also think the Street is underestimating the impact of a late iPad launch in China, a focal point of intense expansion for the company and a huge driver of growth.

Apple began selling the tablet there on Friday, but many had expected it to ship last quarter.

Sales in China, Hong Kong and Taiwan jumped threefold to $7.9 billion in the second quarter, accounting for about 20 per cent of Apple's $39.2 billion in total revenue.

The company typically introduces a new iPhone every year, but has yet to reveal any details on the next model.

However, people familiar with the situation have told Reuters the new iPhone will have a bigger display and that Apple has begun to place orders for the new displays from suppliers in South Korea and Japan.

Meanwhile, Apple's iPhone 4S is just three quarters old, which is relatively new by any standard. But many fans of the phone now see it as a cyclical product with somewhat predictable launch timeframes, preferring to wait a few months to buy the new model, analysts said.

Wall Street estimates Apple sold about 29 million iPhones, down from 35.1 million sold in the March quarter. Sales of the new iPad, expected to be 14 million to 15 million, is likely to offset part of the anticipated sequential drop in iPhones sales.

Apart from concerns about iPhone purchases, Wall Street is worried about the rising prominence of Google and Amazon.com in the mobile market, particularly with the launch of Google's smaller and cheaper Nexus 7 tablet, which is gaining popularity.

Still, no one is bearish in the longer term on the world's largest technology company by market value and most Apple watchers believe the company will make up any lost iPhone volume during the holiday season.

"Big picture, it doesn't matter," said Sterne Agee analyst Shaw Wu. "They are still the share gainer in the larger scheme of things. This is clearly a timing issue."

Big holiday season eyed

Wall Street expects that the outlook for this year's holiday season will be enormous for Apple as it may include the launch of a new iPhone as well as a potential new "mini iPad."

Apple has been working on a smaller tablet, a person familiar with the matter told Reuters.

It is unclear when Apple will launch such a tablet, but some clues are emerging on the timing of the new iPhone.

When Verizon -- one of the wireless carriers that work with Apple -- was asked on Thursday why customers have been holding back on handset upgrades, CFO Fran Shammo said: "There is always that rumor mill out there with a new phone coming out in the fourth quarter and so people may be waiting."

Investors will pick apart executives' comments for clues to new product introductions. While Apple has a policy of never giving advance details or timings on new products, Chief Financial Officer Peter Oppenheimer has often hinted of "product transition" in earnings conference calls preceding a launch.

Wall Street estimates Apple sold about 4 million Macintosh computers as the PC market saw growth sputter in the quarter.

The lackluster expectations do not appear to have affected Apple's stock, which is up nearly 50 per cent so far in 2012. The stock has been choppy since a high of $644 in April. It closed Friday at $604.30 on the Nasdaq.

"Of all the quarters, this is the one that seems to have widest range of opinion," said Granite's Lesko.