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AAPL Stock: 562.29 ( -3.03 )

Needham: Apple iPhone income to rely on 'halo'

updated 11:05 am EDT, Wed June 18, 2008

Needham on iPhone halo


Apple will be dependent on a halo effect for increasing profit through the iPhone 3G, says the Needham & Co. analyst group. With the eliminating of revenue sharing from cellphone carriers, who are also helping to subsidize the new $199 and $299 prices, Apple is not expected to make as much money off each device as it is currently. Needham further proposes that Apple could be hurt by revised, more "realistic" iPhone shipments, and cannibalization in the sales of iPods, which in some cases duplicate iPhone features without the benefit of phone calls or GPS navigation.

In spite of this Apple is predicted to benefit greatly from the iPhone 3G, not so much from direct sales as a halo traditionally associated with the iPod; as iPhone sales increase, a fraction of buyers may switch from PCs to the Mac, Apple's most lucrative product. Needham is thus raising its stock target by $5 to $240, and its 2009 EPS estimate to $6.95.


by MacNN Staff

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TAGS :

 iPhone, Investor, iPhone 3G, Apple

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  1. Athens

    Addicted to MacNN

    Joined: Jan 2003

    +1
    06/18, 11:09am | report spam | (1 reply) Reply |

    doubt it

    I really doubt it will hurt iPod Sales. Most people have a lot more songs then will fit on a iPhone. A lot of people buying iPhones already have iPods, and those that don't, prob are not going to get one anyways since they dont.

  1. dagamer34

    Fresh-Faced Recruit

    Joined: Apr 2007

    +1
    06/18, 11:20am | report spam | Reply |

    Gifts

    First off, by far, the most widely sold iPod is the nano. It's cheap enough that it can be given as a one-time gift without restrictions (like the iPhone 3G).

    Secondly, it's also be widely known that people buy larger iPods for themselves (like the classic).

    Now, it's unlikely that a person is going to own both a iPod Touch and an iPhone, but that's just like how a person is unlikely to own 2 similar iPods at the same time. However, since the iPhone is quite expensive (I doubt they will give you another one at the price of $199 if you loose the first) and iPod nanos can be had for as little as $99, most people may opt to get a cheap iPod nano for uses in more vigourous activities.

    In any case, the iPod classic is on it's way out anyway. That's not the iPhone's doing, but the iPod Touch.

  1. chulitomio

    Fresh-Faced Recruit

    Joined: May 2004

    -1
    06/18, 11:31am | report spam | Reply |

    bleh

    If I never had to hear 'halo effect' again, it wouldn't be soon enough.

  1. vasic

    Fresh-Faced Recruit

    Joined: May 2005

    +1
    06/18, 11:36am | report spam | Reply |

    rather conservative

    These guys are playing it rather safe. First off, their estimates on iPhone profit per unit seem to be lower than anyone else. Looking at what's been said over the past ten days, iPhone 3G will bring in roughtly the same amount of $$ per unit as iPhone 1.0 did. With availability in 74 more countries than before, and the inital, acquisition price half of what it was before, there's little doubt about its big-time profits for the company.

    The ever-popular 'halo' effect will be questionable, but most likely irrelevant.

  1. MacnTX

    Fresh-Faced Recruit

    Joined: Apr 2004

    -1
    06/18, 12:02pm | report spam | Reply |

    App Store

    What they seem to fail to take into account is that Apple gets a 30% cut of every iPhone/iPod touch app that is sold. Once you factor that in, Apple will actually be making more money off of each iPhone sold than they ever have before.

  1. not_too_shabby

    Fresh-Faced Recruit

    Joined: Dec 2003

    +1
    06/18, 12:02pm | report spam | (1 reply) Reply |

    these guys don't get it

    Apple is not selling these phones for $199 and $299, just like Motorola is not giving free phones to ATT. ATT pays around $200 for the "free" phone they give away. With this new arrangement, So apple is getting $399 to $499 for each of the phones they sell. I don't know how many articles I have read now saying it is going to cost apple $100 to make the new iphone, so they are only going to profit $99. They are going to make $300 per phone because of the att subsidy. This is why att is going to be losing money for a year because they have to pay apple $399 or $499 for every iphone they activate and sell for $199 and $299.

  1. MacnTX

    Fresh-Faced Recruit

    Joined: Apr 2004

    -1
    06/18, 12:03pm | report spam | Reply |

    App Store

    What they seem to fail to take into account is that Apple gets a 30% cut of every iPhone/iPod touch app that is sold. Once you factor that in, Apple will actually be making more money off of each iPhone sold than they ever have before.

  1. Constable Odo

    Fresh-Faced Recruit

    Joined: Aug 2007

    +1
    06/18, 02:09pm | report spam | Reply |

    In a normal economy

    people would be buying both iPhone and iPods. I think iPod sales have slowed down due to the economy more than the iPhone has been taking away iPod sales.

    I wonder if the iPod Classics are going to be discontinued. Are harddrives going to be replaced by flash memory. I believe that the Classic line is still useful, but I'll bet Apple wants to drop them from their product lineup. For me a 32GB touch is good enough because that's still more than enough for my standard music collection, but for those that have 80 GB music collections it's going to be tough going forward if their 80 GB Classics fail.

    As Fresh-Faced Recruit says, Apple easily makes more money off the iPhone so why do the analysts keep cautioning about slightly declining iPod sales. They're annoying FUD makers.

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