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Pac Crest: iPhone 3G is short-term gain

updated 03:15 pm EDT, Mon June 23, 2008

Pac Crest on iPhone 3G

The iPhone 3G should be profitable for Apple, but not to the degree it could otherwise have been, writes Andy Hargreaves of Pacific Crest. The analyst is raising his price target for Apple from $225 to $235, and his projected FY09 EPS from $6.20 to $6.55; this is due to expected to the expected volume of 3G sales, which will be aided by availability in 70 or more countries by the end of 2008. The phone is also being subsidized in the case of most shoppers.

The subsidy is at the root of the problem, says Hargreaves. While it should increase the number of unit sales, helping short-term cash flow, it will only offset the loss of revenue sharing collected from carriers and first-generation iPhone owners. The carriers, in fact, may suffer a fair amount in the short-term, as their subsidy per phone may be as high as $350, $25 more than estimated by Oppenheimer's Yair Reiner.

Hargreaves is projecting FY09 iPhone shipments of 15.5 million, with a potential of "significant upside."

by MacNN Staff



  1. rytc

    Joined: Dec 1969



    At the end of the day, for Apple to become more than bit player in the market they need carrier subsidies - if that means slightly less potential profit in the short term then that is what they need to accept. Most people will not buy an iPhone without a carrier discount, esp. if signing onto an expensive monthly contract - a free phone is the expected benefit of a contract.

  1. eldarkus

    Joined: Dec 1969


    I agree

    short term loss, long term gain. Not to mention, this is yet another ring to the halo effect. Higher profile in any market will most likely increase sales & marketshare of Macs.

  1. vasic

    Joined: Dec 1969


    No change really

    Judging by estimates of all who have been following this for the past year (i.e. not just those who jumped on the 3G bandwagon), Apple's revenue and profits on the 3G iPhone will be very similar if not the same as with the old one. While the old one had a lot lower upfront subsidy, plus two years of monthly revenue-sharing stream from AT&T, 3G will have a one-shot $350 injection. From Apple's point of view, upfront payment is probably better than two years of $9 per month trickle.

    In the end, 3G will be one colossal cash cow.

  1. ClevelandAdv

    Joined: Dec 1969


    Apps & Enterprise

    I think the boon for Apple will be the Application potential for the device, and the fact the the whole Blackberry Push system will be one-upped by Apple with this release.

    Enterprise customers now have an alternative platform that is much easier to manage, and much more robust.

    This will mean lots of additional sales for Apple

  1. moteltan

    Joined: Dec 1969


    it's the software, dummy

    Apple does manufacture some s*** form factors, and its success would be greatly reduced without that level of style and hardware innovation. However, it has been and will continue to be their software that drives the halo around their success. Opening up iPhone to 3rd party developers and providing them with a robust SDK and a fairly decent, low-cost distribution scheme will prove to be the winning play. Enterprise--well, that will be massive, but turning on all those other developer's brains and focusing them onto this new platform--a computer that fits in your pocket, is always connected to the cloud, and always knows where you are--will make business adoption look tiny. As far as deferred revs vs. non-deferred w/ the new subsidy model, we'll see. I think it's important to get the foot in the market's door w/ the subsidized phones first. Yes, while you can slaughter a sheep only once but you can shear it forever, it's by slaughtering the 3Gs that Apple gets a much broader adoption of its widget--more sheep to milk later.

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