Analyst: the street underestimates iPhone
updated 04:15 pm EST, Thu March 1, 2007
iPhone underestimated?
Apple's iPhone could surprise industry watchers by selling 8 million units in 2007 following its launch in June, according to research firm Morgan Stanley. The firm raised its iPhone estimates by 33 percent from 6 million to 8 million based on a survey, which found that more people are interested in purchasing an iPhone than the combined number of people who already own or are planning to purchase a similar high-end device. "The survey results suggest iPhone demand could increase even more if Apple successfully expands awareness of the product, broadens the iPhone product portfolio, extends to other carriers, or offers service contract or product discounts," analyst Kathryn Huberty wrote in a research note obtained by MacNN. "In fact, while the high-end device market is clearly growing, iPhone appears well positioned to disrupt potential market shares." The research firm rates Apple as "Overweight" with a $110 price target.
Morgan Stanley advised investors to purchase Apple shares on incremental revenue and operating leverage.
"We believe the market is underestimating the likely success of iPhone. We're raising our Calendar 2007 unit and revenue forecasts to better reflect iPhone interest levels, as described in our proprietary survey."
The firm also raised its earnings-per-share estimates for 2007 and 2008 to reflect higher unit estimates and a more favorable NAND pricing outlook.
"We also believe the market is underestimating potential operating leverage. While we see positive leverage drivers across Apple's product segment, the iPhone alone increases scale (better pricing from suppliers), strengthens retail store leverage (increased velocity on fixed-cost base), and takes advantaqge of lower NAND pricing in the market."
Results from the survey appear to show that the hype over the forthcoming iPhone launch is not overblown, and in fact that iPhone demand appears higher than the market currently anticipates. Interest in Apple's cellular handset "far exceeds" levels for other high-end/converged phones in the market, including RIMM's BlackBerry device. The analyst says 19 percent of survey respondents either currently own or plan to purchase a high-end device in the next year. That number compares to 23 percent of respondents who said they are either extremely or somewhat interested in purchasing an iPhone in the 12 months following its release.
"This is a clear indication that dmeand for iPhone could expand the overall high-end device market in a significant way."
The firm points to roughly 140 million converged devices that were shipped over the last two years, with BlackBerry holding the highest market share at around 7 million users.
Morgan Stanley advises purchasing Apple for two "core" reasons: "We believe the market still underestimates potential traction of new products, including the iPhone; and incremental operating leverage exists with Apple's retail store distribution engine and component price negotiating power."
Despite the bright news for Apple and its upcoming cellular handset, the firm lowered its calendar 2007 iPod forecast from from 46.5 million to 45 million to account for slightly higher cannibalization as a result of higher iPhone sales.
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Joined: Jul 2002
I don't get the Numbers
The last numbers I saw put the 2005 calendar year shipments at about 1 billion cell phones, with 65 million being high-end or so-called smart phones. Assuming that now the high end number is 100 million shipped, then the stated Apple iPhone target of 10 million is 10% of the high-end. While doable, that is a lot for year 1, especially considering it will only be in the US for the full year.