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AAPL Stock: 98.72 ( -0.31 )

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AAPL target raised to $135 on iPhone outlook

updated 10:10 am EST, Mon January 29, 2007

Needham bumps price target

Despite likely slow initial iPhone sales due to its high price point, Needham & Co. analyst Charles Wolf believes the new gadget's price will fall at a 20 percent rate annually due to declining component costs and rising carrier subsidies. "The decline in price should accelerate demand as the iPhone invades the sweet spot of the mobile phone market," Wolf wrote in a research note obtained by MacNN. "With carrier subsidies, the iPhone should sell for around $75 in the final year of our forecast." Wolf is predicting sales of 135 million iPhones in 2016, equating to a 7 percent market share for an increase of $20 net to Apple's target price. Wolf raised the research firm's target price on Apple shares from $115 to $135.

The value of the iPhone, according to the analyst, depends on three predictions which include the annual decline in the price at which Apple sells its iPhone to carriers, the magnitude and trajectory of carrier subsidies of the iPhone, and the price elasticity of demand for the cellular handset.

"Based on Apple's strategies in pricing the Mac and iPod, the price at which Apple sells the iPhone to carriers should decline at a 12 percent annual rate," Wolf said. "Carrier subsidies should increase over time because the iPhone should generate growing data access fees as features and services are added. The price to consumers should fall at a 20 percent annual rate."

Wolf adds that as the price of the iPhone falls toward zero, the price elasticity of demand will likely increase at an accelerating rate. Needham's free cash flow valuation model converts its iPhone forecast into $24 of value per Apple share, and factoring in cannibalization of iPod sales translates into a net addition of $20.

"The obvious risk is that iPhone sales could fall materially short of our forecast," Wolf cautioned.




by MacNN Staff

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Comments

  1. Zkatz007

    Joined: Dec 1969

    0

    Are you kidding me?

    Is this guy an idiot? He's predicting iPhone sales up to 2016?

    19 years ago, it was 1988. Are you telling me that this man is predicting the future of electronics? That any product line would LAST 19 years in the developing electronics world is laughable!

  1. climacs

    Joined: Dec 1969

    0

    the obvious risk

    is that trying to forecast sales 9 years out, of a product that still has ~6 months until you can actually buy it, is about as accurate as throwing darts at a bunch of numbers taped to the wall, and choosing the one you hit most.

    True story: Playboy models were given $10,000 in imaginary money to invest in an imaginary portfolio. Several Wall Street analysts were also in on it. 40% of the models beat the S+P for that period, while only 29% of the analysts did.

  1. Peter Bonte

    Joined: Dec 1969

    0

    Playboy models

    The models just bought Apple shares because they love there iPod :-)

    I predict a lot more than just 7% market share, this product will catapult Apple way past Nokia and MS in a few years, 5 years maximum. This is way bigger than the Mac so i also believe osX will be licensed in the near future.

  1. climacs

    Joined: Dec 1969

    0

    translation

    "The obvious risk is that iPhone sales could fall materially short of our forecast"

    translation: I could be completely, totally wrong about this.

    whose d*** do i have to suck to get one of these well-paid analyst jobs? Sounds like they make a living by running a bunch of guesses through a calculator and throwing them out there to suckers, er, I mean, investors.

  1. climacs

    Joined: Dec 1969

    0

    models vs. analysts

    here's a link to the story I cited:

    http://money.cnn.com/galleries/2007/biz2/0701/gallery.101dumbest_2007/32.html

    "TradingMarkets - a Web site that provides its subscribers with professional stock-market expertise for as much as $100 a month - in January invites 10 Playboy models to participate in an investing contest.

    When results are tallied toward the end of the year, 40 percent of the bunnies deliver better returns than the S&P 500, compared with just 29 percent of actively managed mutual funds."

  1. Deal

    Joined: Dec 1969

    0

    Wow!

    I wonder if this guy can predict Armageddon? At least not until 2017, right?!

  1. Panzer

    Joined: Dec 1969

    0

    playboy

    This comparison is fundamentally flawed. The bunnies picked individual stocks, and they are being compared to mutual funds after a year. You don't put money into a mutual fund with the intention of beating the market average, and you should question anybody that says otherwise. That's not their purpose and shouldn't be used to try to accomplish this. Their point may have been to subscribe to their service and do as well as the bunnies (beating the market average and the mutual funds). But otherwise it's like comparing apples and, well, dells. Stupid stunt, but it worked if their goal was to get attention and clicks. Now if we can just get back to the bunnies... ^_^

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