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New iPhone details should excite fans, not investors

Apple (AAPL) is putting on one of its masterfully planned product unveilings next week, almost certainly focused on new iPhone models. But while Apple fans will get their fill of gorgeous phone photos and beguiling new phone features, Apple investors won't get the most important information they need for many more weeks.  

Last month, Apple sent out invitations to the Sept. 9 soiree in San Francisco and numerous leaks have since pinpointed the event as the introduction of upgraded models to be dubbed the iPhone 6S and 6S Plus. A few other new products may show up as well, including upgrades for Apple TV and possibly the iPad.

That means an hour-plus of CEO Tim Cook, righthand man Phil Schiller and other Apple executives showing off the likely sharper cameras, longer-lasting batteries and sexy new apps that have accompanied every new iPhone intro since 2007. As Apple only overhauls the physical design of the iPhone every other year, the leaks indicate that the upcoming 6S should retain the same basic dimensions and popular screen sizes of 4.7 and 5.5 inches as the current iPhones.

Just how much excitement Cook and company ignite with the presentations may sway the initial press coverage, but history tends to show that sales trends will be driven by larger macro factors.

Apple's customer base for new sales is growing thanks to the deep pool of existing owners ready for an upgrade combined with the many millions of people around the world buying a smartphone for the first time. There aren't any new carriers like world leader China Mobile to sign up anymore (that partnership helped drive a massive increase in sales in China over the past two years) but Apple's penetration in many fast-growing areas like India and Latin America remains low, leaving plenty of room for growth.

Currently, analysts have modest expectations for iPhone sales growth. On average, analysts expect Apple will sell 235 million iPhones in its upcoming fiscal year, which starts in October, up from 231 million in the prior year, according to FactSet.

Investors certainly want to gauge the rate of future sales, but again, that won't be obvious from the specs of the upgraded models. The other key variable for investors, however, is just how much it cost Apple to make each new iPhone. Apple's profit margin on its hardware has swung dramatically from model to model. And since the iPhone is by far Apple's biggest source of revenue and profits, those margin swings can have a major impact on Apple's stock price.

The run-up in Apple shares in 2012, peaking in September, directly correlated with huge gains in Apple's gross profit margin as it introduced the iPhone 4S (see chart below, which tracks Apple's stock price against the trailing 12-month gross profit margin). The subsequent fall likewise followed shrinking margins that accompanied the iPhone 5. The picture improved somewhat with the 5S and even more with the iPhone 6.

Sometimes the desires of phone users can conflict with Apple's effort to improve profits, of course. Many other phone makers have upped the storage of entry-level phones to 32GB, but Apple has stuck with 16GB -- and is rumored to be doing so again in the new 6S models. All other things being equal, Apple also typically can squeeze out more profits from the "S" models because it doesn't need to install new manufacturing equipment to craft the iPhone's outer metal shell and other key components.

Apple won't disclose its gross profit margin for the third quarter -- during which new iPhone sales will start -- until late October. An even more important reading will come three months later, in January, when Apple reports sales and profits for the holiday quarter.

Before that happens, investors will have to be careful about so-called teardown estimates of the cost of building the newest iPhones. Firms like IHS and Techinsights rip apart new phones as soon as they arrive and try to figure out the cost to Apple of each and every component. But it's an impossible mission, as Cook has warned on several occasions. "Generally there are cost breakdowns around our products that are much different than the reality," Cook said on Apple's April earnings call. "I’ve never seen one that is anywhere close to being accurate."

For example, IHS guesstimated that the iPhone 4S included parts that cost Apple $188, about the same as the estimated $187.51 cost of parts in iPhone 4, the prior model. But Apple's actual financial results showed a big difference in gross profit margin, which hit almost 39% in the last quarter of 2010 when the iPhone 4 was on sale, then rose to almost 45% a year later on the back of the 4S. That drove the stock price to new heights, until the iPhone 5 came along at the end of 2012 and sent the gross margin down.

So though iPhone users may cheer and whelp when Tim Cook and Phil Schiller unveil their newest baby, investors will largely have to sit quietly and wait.