updated 10:50 am EDT, Mon July 2, 2007
Analyst ups AAPL estimates
Apple will become a top selling smart phone vendor over the next 2-3 years if American Technology Research analyst Shaw Wu is correct in his predictions about the Cupertino-based company. After initial testing Wu describes the iPhone as a "landscape changing device" that is the "first true convergence device." The analyst says the iPhone's user interface, Safari Web browser, and widescreen video iPod capabilities make it the best internet experience on a smart phone "by far." Wu also expects less cannibalization of iPod sales due to the iPhone's limited storage capacities and shorter mixed usage battery life. Wu raised his price target to $165 from $145, but believes Apple shares could pull back on high expectations and near-term concerns.
"We are raising our estimates. For fiscal year 2007, we are now at $23.5 billion and $3.50 in earnings-per-share and for fiscal year 2008, $30.2 billion and $4.10."
The analyst estimates around $6 per share in cash flow from operations for calendar year 2008, up from $5.25. Wu suggests buying Apple on any sign of weakness.
iPhone a landscape changing device
"From a bigger picture standpoint, we believe the iPhone represents the start of a potential revolution in both PC and mobile electronics industries," Wu said. "In our view, it is more than just a classic old school product in that it is landscape changing, being the first true convergence device that combines the best media player (widescreen video iPod), a near full-function web browser (Safari), e-mail/contacts/calendar, and a cellular phone."
Over the next 2-3 years, Apple has the potential to become a top selling smart phone vendor, according to Wu, which would bring Apple's phone category into the mainstream as it did with its market leading iPod.
User interface, Web browsing "particularly impressive"
American Technology Research is impressed with the iPhone's user interface, which the firm says offers "by far the best" internet experience on a smart phone vs. most other phones which are "unusable."
"For the user interface, we find the 'pinch in' and 'pinch out' to zoom in and out particularly innovative and we also like the simplicity of a single 'home' button to press in case one gets lost. And finally, we agree with Apple that it is the best iPod ever, but we believe the relatively small 4GB and 8GB storage capacities and shorter mixed usage battery life will limit cannibalization of stand-alone iPods."
iPhone has its flaws, room for improvement
Wu describes the iPhone's virtual keyboard support somewhat difficult to use, noting that customers will likely require some time to get used to the new style. The analyst also notes that battery life could be better.
"In our extreme testing conditions (in which we were literally using the product non-stop given our excitement), we get battery life closer to 3 1/2 hours. We noticed web surfing uses up the most battery life. When we get to more normal use patterns, we envision charging the iPhone every 1-2 days, similar to other smart phones."
The analyst also finds Apple's $499 (4GB) and $599 (8GB) prices "somewhat steep" and would like to see Apple round out its iPhone line in a similar fashion to its iPod and Mac devices, offering mid-range as well as low-end products alongside the high-end models.
Multi-touch is "revolutionary"
"We are not surprised with the mixed reactions around the virtual keyboard. As we have mentioned in previous notes, there is a learning curve. We find the multi-touch interface radical and revolutionary, which reminds us of the original Apple mouse in 1984. Back then, the feedback was that it was a toy and why would anyone want to use a mouse and icons when text and a keyboard were better. We all know what happened to mice and icons since then."