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Analyst: iPhone mini could increase Apple's market reach by 6X, revenue 2.5X
Analyst Toni Sacconaghi of Bernstein Research predicts Apple could increase its addressable handset market by 6X in unit volume and 2.5X in revenue with the launch of a smaller, less expensive iPhone model, says Forbes. These projected numbers come from his analysis of handset market share and Apple's current market reach. Sacconaghi suggests Apple misses 60 percent of the handset market with its current strategy that limits distribution to select carriers and sells the iPhone at a relatively high price point. Sacconaghi predicts Apple could take two approaches with the cheap iPhone. In one scenario, Apple would produce the iPhone mini, a scaled-down version of the iPhone that would offer a less robust internet and App experience. The handset would be less data-intensive and would debut with a low-cost data plan that costs $15 or less per month. The other option would be to sell an "iPhone touch," which would be an iPhone without a data plan. This hypothetical beastie would have all the capabilities of the iPod touch plus voice calling, but no cellular data. 3G connectivity would be available but optional, a scenario that would let users rely on Wi-Fi for all their data needs. [It's not clear from the Forbes excerpt of the report if Sacconaghi is explicitly saying that hardware-wise, an "iPhone touch" is identical to an iPhone -- Apple would need to include all the 3G radio chips, antenna and corresponding battery power to handle 3G data if it's a customer-selectable option. --Ed.] Sacconaghi suggests that both of these handsets could debut with retail prices close to or less than $149. if Apple could capture even 5 percent of its missed market share with a cheap iPhone, the Cupertino company could see a minimum annual profit boost of $4.50 a share. [Another bit of confusion here; it's not at all clear that Toni S. is considering the unsubsidized price of the current iPhone, which starts at $599 and goes up from there. How we get from that price down to $149 without the full support of a carrier subsidy -- harder to justify without a revenue-rich data plan attached to the phone contract -- is not really clear. --Ed.] While Sacconaghi expects Apple will make this move to a less expensive model, he believes the chance of a summer launch is low. The analyst points out that Apple's iPhone 4 supply is still constrained, and the manufacturer would not want to steal the thunder from the launch of the iPhone 5 expected in June. If Apple were to pursue this low-cost option for the iPhone, perhaps a fall launch tied into its annual iPod refresh might be a more realistic possibility. Thoughts anyone?
iPhone gross profit margins nearly 60%
Bernstein Research's Toni Sacconaghi issued a 13-page report last week in which he estimated that the iPhone's gross profit margins were an astounding 57.8%. Those margins tower above Apple's competitors with RIM estimated to have 43% profit margins, Nokia 33%, Motorola 32%, and HTC 31.7%. Sacconaghi believes that the iPhone's high gross margins could change Apple's business model as the iPhone's share of Apple's overall revenue stream grows from 30% in FY09 to an estimated 45% to 50% in FY11. Philip Elmer-DeWitt over at Apple 2.0 notes that while the Street generally assumes Apple's profit margins will decline over the next few years, Sacconaghi believes they will increase due to a few key points: iPhone prices are actually increasing. In Q3 2009, the average wholesale price was $588. In Q1 2010 it's risen to $638. Buyers are still more than eager for the iPhone. There is no sign of price resistance from either customers or carriers. Mobile partners are still lining up to get the iPhone with Apple adding 15 new ones over the past 4 months. Despite his Rosy outlook, Sacconaghi is reducing his iPhone shipment estimates by 1.3 million units in FQ4 10 and 5.5 million units in fiscal year 2011 under the assumption that there won't be an iPhone for Verizon before mid 2011. He also expects T-Mobile will get the iPhone before Verizon does. As for the iPad, Sacconaghi estimates its gross profit margins to be between 30 to 32%, not the 50% suggested by iSuppli. Sacconaghi rates AAPL as "Outperform" and has a price target of $250. In his report he states, "We believe that on a cash flow basis the stock is very attractively valued and that the stock is the most attractive secular name in our coverage universe."
Reminder: Q1-2009 conference call liveblog, today at 5 p.m. ET
Just a reminder: Be sure to come back today at 5 p.m. Eastern (that's 2 p.m. Pacific) for Apple's First Quarter 2009 Results Conference Call. We'll be liveblogging the occasion, with contributions from your favorite TUAW bloggers, and yours truly. Apple is streaming audio from the call here. A recording of the call will be available at that page for a few weeks afterward. Fortune's Apple 2.0 blog has its roundup of projected Q1 sales numbers from Bernstein Research's Toni Sacconaghi and Piper Jaffray's Gene Munster: Mac sales. Munster: 2.5 million to 2.6 million. Sacconaghi: 2.57 million. iPod sales. Munster: 18.6 million. Sacconaghi: 18.1 million. iPhone sales: Munster: 6.4 million. Sacconaghi: 3.5 million to 4 million. In related news, AAPL hit a two-year low yesterday, closing at its nadir of $78.20 per share. Also, Bloomberg is reporting that the U.S. Securities and Exchange Commission will review Apple's 10-K filing from last year. Apple hasn't been accused of any wrongdoing, but Bloomberg says the SEC wants to make sure investors weren't being misled about Steve Jobs' health. (Via Macworld.) More coverage of the earnings report is available at our sister site Blogging Stocks.
