New carriers, data-free model needed

Apple may have to make some major strategic moves in order to continue growing iPhone share beyond where it is right now, claims Bernstein Research analyst Toni Sacconaghi. While there may still be some room on the current course, Sacconaghi points out that the device is already sold in 89 countries by 143 carriers, amongst which it has 39 percent of the smartphone market. It is going to be "increasingly difficult" to squeeze more profit out of current partners, the analyst observes.

Apple could potentially double the addressable market by finding new carriers, as the current ones represent less than half of the world's post-paid cellphone customers. If Apple were to sign up the 13 largest missing carriers -- including Verizon, China Mobile and NTT DoCoMo -- the potential market would grow 65 percent, Sacconaghi suggests. Some 15 carriers of varying sizes have been added in the last four months.

To achieve triple current share the analyst argues that Apple would have to sell a phone without a data plan, tapping into the non-smartphone market. A $40 voice plan could appeal to the "vast majority" of post-paid subscribers, says Sacconaghi, as well as a number of pre-paid subscribers. The monthly fee would be enough to cover subsidies, and if the phone were priced at $350 wholesale, it could still maintain gross margins of 50 percent, supporting Apple profit goals.

Simply adding the extra carriers would theoretically boost EPS by $5, and another $4 could come from a non-data phone. Together the changes could potentially more than double the present predicted iPhone contribution to FY2010 EPS, just $8.

"To date, Apple has done an excellent job expanding distribution, lowering the iPhone's price, and enhancing the device's feature/functionality –- all of which have contributed to sustained, strong iPhone unit sales," Sacconaghi concludes. "Given its increasingly high market share, we believe that Apple increasingly risks disappointing on investor expectations for iPhone unit sales if it is not able to secure additional incremental distribution and/or introduce lower priced offerings over the next 12–18 months."

by MacNN Staff