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Apple Recovery: What Needs to Happen (Update 1)

Analysts surveyed by Thomson Reuters expect Apple to earn $10.18 per share on $42.8 billion in revenue. A year ago, Apple earned $12.30 per share on $39.19 billion in sales, so earnings have come down drastically. In order for Apple to grow earnings, it must innovate, and that's where the third and perhaps most important part of Apple's recovery comes from.

Apple's primary profit and revenue driver is the iPhone, but the many on Wall Street believe Apple is hurting itself by not introducing a lower-cost iPhone, to cater to emerging markets. "[T]he introduction of a lower priced iPhone this year will allow Apple to tap into 60% of the smartphone market that the Company is currently missing out on," White wrote.

There is a mixed opinion about whether Apple should introduce a lower-cost iPhone, and whether it would hurt Apple's brand or not. At a recent investor conference, Cook sidestepped this issue, only saying Apple would never make bad products. "The only thing we'll never do is make a crappy product," Cook said. "We're going to make a great product. And so that's the only religion that we have is we must do something great, something bold, something ambitious. We want the customer to be at the center of it. We want to enrich people's lives."

Expanding Apple's presence, especially in China, is another way for Apple to get its groove back. A deal with China Mobile (CHL) would go a long way toward putting the iPhone in the hands of more customers. Earlier this year, Cook and China Mobile's Chairman Xi Guohua discussed "matters of cooperation," but so far, nothing has come of that.

It doesn't mean there won't be anything, however. China Mobile has plans this year to substantially increase its capital expenditures, as it builds out its 4G network, and many believe that is a sign that the iPhone is coming to the world's largest mobile carrier later this year.

White said China Mobile had 95 million 3G subscribers at the end of January, as part of its 715 million subscribers, so the opportunity for Apple and the iPhone is tremendous. Cook has acknowledged this fact in the past, saying China is an incredibly important market for Apple. "It's clear that China is already our second largest region as you can see from the data that we have given you and it's clear, there is a lot of potential there," Cook said on Apple's most recent earnings call.
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