Bear Stearns’ analyst Andrew Neff, in a note to clients today, extrapolates the impact of the “iPhone” on Apple’s bottom line. Based on the news reported by Commercial Times in Taiwan (of Hon Hai’s Foxconn shipping 12 million “iPhone” units in the first half of 2007), Neff ran some numbers to get a sense of the incremental impact.
Neff notes that that none of this is in Bear Stearns’ AAPL model and that there are many uncertainties around the product, launch date, pricing, margins, etc., but the analyst wanted to quantify a possible scenario. Based on the assumptions noted below, Neff estimates that AAPL could potentially see incremental EPS of about $0.70 on $6 billion in incremental revenues from an iPhone in its first year. Bear Stearns’ estimates include 30% potential cannibalization of total (current) iPod unit sales by iPhone introduction.
Some of Bear Stearns’ assumptions (which are subject to change in terms of timing and magnitude, Neff notes):
• Given Hon Hai’s expectation of 12 million unit shipments during the first half of 2007, Neff assumed total unit shipment of 29 million units for 2007 (which would imply a market share of around 3% of the total mobile phone market). Other trade reports have noted lower shipments for the iPhone — i.e., around 20 million units, but the numbers could be sized either way.
• Neff assumed iPhone ASP of $300 (without carrier subsidies), which is below PALM Treo ASP of $489 and RIMM Blackberry ASP of $349 but seems reasonable given the market for phones with music. ASPs could end up higher/lower depending on features.
• Neff assumed 15% operating margin, which is above AAPL’s operating margin of 14%. Neff says such margin assumption appears reasonable since PALM Treo’s gross margin is 35%-40% while AAPL’s operating expenses as percentage of sales is about 15%.
• As noted above, Bear Stearns assumes that an iPhone would cannibalize iPod (mostly nano) sales and assumed that iPhone would cannibalize around 30% of existing iPod unit sales.
• By way of comparison, Bear Stearns’ current earnings model for AAPL shows $3.07 (pre-options) on $24.5 billion in revenues for CY07. As mentioned above, Bear Stearns have not reflected the iPhone in their current model (although they do reflect new products such as iPhone and iTV in their P/E multiple).
Related articles:
‘iPhone’ confirmed: Foxconn secures Apple contract for 12 million units – November 15, 2006
Apple’s oft-rumored ‘iPhone’ coming next year? – November 14, 2006
Disney patent application shows ESPN video content coming to wireless iPod – November 09, 2006
Analyst: Apple has choice of four main ‘iPhone’ strategy options – November 06, 2006
Cingular Exec says over one million Apple iTunes-capable phones sold, comments on iPhone, more – November 02, 2006
Cingular music deal suggests possible Apple MVNO for ‘iPhone’ – November 01, 2006
Cingular to launch music service sans Apple – November 01, 2006
iPhone sign? New Motorola Rokr phone uses Real One media player, not Apples’ iTunes – October 24, 2006
Apple’s taken iPod+iTunes to an entirely different level; iPhone will be like supertrain – October 21, 2006
RUMOR: Apple iPhone features leaked – October 19, 2006
Prudential analyst: Apple prepping two ‘iPhone’ models for Macworld Expo January 2007 release – October 16, 2006
Apple seeks rights to iPhone trademark – October 16, 2006
What would an Apple iPhone look like? – October 04, 2006
RUMOR: Apple iPhone to be Cingular-exclusive in US launch, O2-exclusive in Europe – September 26, 2006
Apple’s iTunes 7 contains iPhone clues – September 15, 2006
RUMOR: Apple ‘iPhone’ to debut at Macworld Expo in January 2007 – September 15, 2006
Apple ‘iPhone’ photo a fake, but potential buyers seem real – September 14, 2006
RUMOR: Apple’s ‘iPhone’ to be iPod nano-like candy bar form factor with choice of three colors – September 14, 2006
Apple’s iTunes 7 installer shows ‘iTunes Phone Driver’ as greyed-out option – September 12, 2006
Analyst: Apple could sell 12 million ‘iPhones’ next year – September 11, 2006
Analysts: Apple ‘iPhone’ design and business strategy more ambitious than expected – September 08, 2006
Analyst: Apple ‘iPhone’ finally ready for production – September 05, 2006
Apple CEO Steve Jobs talks up much-rumored ‘iPhone’ iPod mobile phone – August 11, 2006
Is this Apple’s iPhone? – August 03, 2006
BofA ups Apple Computer to ‘buy,’ expects ‘iPhone’ in 2007, shares rise in early trading – July 31, 2006
Not sitting around doing nothing: ‘iPhone’ could add billions to Apple’s revenue – July 21, 2006
Apple CFO on iPhone: ‘we’re not sitting around doing nothing’ – July 20, 2006
Merrill Lynch ups Apple rating to ‘buy’; UBS raises Apple target to $80 – July 20, 2006
Apple Q3 2006 Conference Call notes – July 19, 2006
iPhone, iPod messenger clues in latest iPod firmware update – July 17, 2006
Patent application shows iPod capable of live wireless video conferencing – June 13, 2006
Bear Stearns comments on Apple: ‘true’ video iPod, iPhone, multiple OS plans – May 17, 2006
Apple patent application filed for wireless iPod+iTunes distribution – May 04, 2006
Report: Apple Computer may soon launch its own music ‘iPhone’ – March 31, 2006
RUMOR: Apple ‘iPhone’ put on hold – March 30, 2006
Visiongain: Apple ‘iPhone’ launch imminent – March 29, 2006
BenQ exec: Apple’s iPhone ‘definitely coming’ – March 23, 2006
European patent application shows Apple ‘iPhone’ info? – March 21, 2006
Analyst: Apple ‘iPhone’ could put a dent in Motorola – March 20, 2006
Anayst: 75-percent chance of Apple ‘iPhone’ in next 12 months – March 16, 2006
Generator Research: Apple to Ship $4.2bn in Wireless iPods (WiPods) by 2010 – March 14, 2006
Citigroup tech analyst: Apple ‘iPhone’ is going to be a category killer – March 03, 2006
Motorola to make Windows Media phones, keep separate iTunes phone line – February 13, 2006
Review: Motorola SLVR Apple iTunes mobile phone ‘an incredibly slick gadget with some shortcomings’ – February 13, 2006
Ready for your wireless Apple iPod? – February 09, 2006
Wireless iPod? CSR and PortalPlayer to bring wireless connectivity to personal media players – February 08, 2006
Motorola and Cingular launch new SLVR L7 iTunes phone – January 31, 2006
Analyst sees new Apple iBooks by April, ‘media hub’ product, 1GB iPod nano, iPhone within a year – January 31, 2006
Analysts tackle Apple’s ‘Mobile Me’ patent, iPhone rumors, MVNO possibilities – January 19, 2006
The San Francisco Chronicle: Apple may link cell phone, iPod – January 17, 2006
Apple Computer getting into the mobile phone market? – January 12, 2006
Apple applies for ‘Mobile Me’ trademark – January 11, 2006
Morgan Stanley predicts Apple shares surge, Apple ‘iPhone’ in 2006 – December 16, 2005
Wireless Apple iPods coming in 2006? – December 09, 2005
Analyst predicts Apple-branded ‘iPhone’ with iTunes and terabyte iPod within five years – November 11, 2005
How Apple’s Steve Jobs snookered the entire cell phone industry – October 03, 2005
Motorola CEO Zander: Apple to build a smart phone, it’s only a matter of time – September 29, 2005
Apple may eventually introduce its own ‘iPhone’ cell phone-iPod combo and create Apple MVNO – September 12, 2005
If Apple isn’t working on their own iPhone, they’re making a stupid mistake – September 12, 2005
Does Apple need a mobile phone of its own design? – September 09, 2005
Piper Jaffray: Apple should develop ‘iPhone’ by themselves – September 06, 2005
Forbes: Apple Computer planning to become a phone company? – July 08, 2005
Wendland: Bill Gates is right, iPod will be replaced by smartphones – by Apple – May 13, 2005
Is Apple building ‘The Device?’ – December 10, 2002
Apple Registers iPhone Trademark in Australia – December 02, 2002
I’ll believe it when Steve announces it… until then it’s all rumor.
I’ve heard that it’s not a rumour, and that it’s fact.
Well that’s what I’ve heard anyway!
I’m not sure an iPhone would cannibalize nano sales. I got a nano for workouts, and find I like it more than my 30 Gb iPod in general. It’s more convenient all the way around. So the size and weight are a major draw for a nano.
An iPhone is probably going to weigh closer to what the iPod weighs than a nano, so the main reason for owning a nano remains….
Yeah, I see that it’s been announced that Foxconn is manufacturing them. But we’ve been down this road a number of times before with “credible” news reports about the iPhone.
Don’t get me wrong, I’ll be the first to trade in my verizon treo for an iPhone. I’m just gonna wait for His Steveness to announce it before I get all hot and bothered about it.
I hope Apple sells an unlocked phone from the Apple Stores and online and bypasses the cellular companies. Then they can keep the profits. hen my stock goes up!
Neff assumed total unit shipment of 29 million units for 2007 (which would imply a market share of around 3% of the total mobile phone market)
And then when they “only” sell 25 million it’ll be considered a failure to make projected targets.
How can he assume they’ll crack 3% when he knows nothing about the way this phone will be distributed? I mean, if it’s given away by a carrier, you can expect larger numbers than if it’s sold on it’s own for a much higher price.
THis is nothing more than the musings of a guy with more free time than those of us posting on here have.
I know a guy that works there. Foxconn will assemble iTV’s motherboard, not iPhones.
Will ANYBODY be able to use an iPhone – or will it just be for customers of 1 service provider?
All this analytical mumbo-jumbo about a phantom product that has never been announced or acknowedged as even being a concept by Apple. What gives? Meanwhile, the Zune sits in the corner flailing for attention… no? didn’t think so…
What gives? I’ll tell you what gives —
This is such an obvious HUGE market for Apple to just go right in and sweep AT LEAST 3% off the top and it will add 6 BILLION dollars a year to the company.
that’s what gives HMM. And that’s exactly why we know for sure Apple is introducing one. It’s just that Apple has such high standards it’s taking them awhile to get it right. They know that if they hit this one on the head, it will be more like 8%-12%. Do the math.
And yeah I will be first in line to buy one. Maybe I will see you at the Apple store…
=]
I can’t help but wonder if Apple would really buy into this mature market. Where Apple excels is doing something new, something largely unexpected.
I just wonder if people are over-reading the tea leaves. Apple may have something to do with cellular, but is it a standard phone? Maybe there are voice capabilities, but I have a feeling it could be purchasing music straight from iTMS through the iPod without a computer. Then, resyncing everything correctly when it’s plugged in again.
I just noticed how my iPod warned me last night that I had purchased music on my ioPod that wasn’t in iTunes any longer, asking if I wanted to transfer the songs from the iPOd to the computer. Unless I’ve been missing something, this is new(ish).
Apple moves incrementally now, not always in sweeping revolutionary moves. I think a phone may be down the loine, but not sure it’ll be the first thing out the door.
I Phone…You Phone…we all groan for iPhone!
“I just noticed how my iPod warned me last night that I had purchased music on my ioPod that wasn’t in iTunes any longer, asking if I wanted to transfer the songs from the iPOd to the computer. Unless I’ve been missing something, this is new(ish).”
It is new. This feature came out with iTunes 7. This is the feature that you’d need to work for the feature you mentioned in your previous paragraph.
I can’t help but wonder if Apple would really buy into this mature market. Where Apple excels is doing something new, something largely unexpected.
This is an excellent question and one that I hope Apple has thought carefully about. The story of the iPod shows that Apple initially considered digital cameras but found that they were extremely well made, whereas the same wasn’t true of MP3 players.
Still, I think that despite the fact that there are major global players in the mobile handset market, almost all devices suffer from annoying or crippling design issues. From bad keypads to awful software interfaces, I would not say cell phones are well designed. I’ve yet to own a cell phone that has a great interface – most are non-intuitive, bloated messes.
Given that the iPod already has extras like Alarm Clock, Calendar, Contacts, Notes, etc., I could see the “iPhone” basically doing all these things right. There’s still a long way to go before mobile phones work seemlessly with your computer, and certainly, a lot of mobiles don’t work well as music players because the interface is so awful.
I’m hoping that Apple turns aside conventions because the ROKR experiment showed that the current accepted thinking in terms of design in mobiles are very limited. ROKR proved that non one has yet made a phone that has a great hardware/software experience like the iPod. This is an area that Apple could totally innovate.
The rumor is, that this rumor is facts!
If Apple does not play in the cell phone market (which is changing rapidly btw), iPods will die on a vine.
The true question is: Is Apple an iPod provider, or are they are mobile media provider?
Obviously, the answer is the second, and cell phones are morphing into mobile devices, not just walk-n-talk anywhere products.
Apple must revolutionize the industry by allowing their solution to be massively iTunes friendly, further entrenching iTunes as the key to all things mobile.
While Steve has said the Mac is the digital hub, that has changed. iTunes is moving to be the digital hub – Mac or PC makes no difference.
Directing attention to iTunes as the hub, takes away Microsoft’s monopoloy OS power, and makes it a back burner issue. It also makes the Mac a more viable option as the point is iTunes, not “I must have a Windows computer to do XYZ.”
The argument is to become “I must have iTunes to do anything” and of course, all devices are from Apple and tie in seamlessly to iTunes, with the possibility of having some OS X-only iChat video features, etc…
Follow the rabit hole and things become more clear. It is all about making iTunes the platform, and all devices will feed and flow into it, making iTunes a new, but welcome, media monopoly.
NO iPHONE, now shut up. – Steve Jobs
Apple getting into the mobile phone market is as dumb as Apple getting into the mouse buisness.
Tracefone $18 at Walmart.
Some phones now have GPS devices and give directions to a location, bet that caught Cupertino by surprise.
All this analytical mumbo-jumbo about a phantom product that has never been announced or acknowedged as even being a concept by Apple. What gives?
——————-
Peter Oppenheimer (Apple CFO) did say that “We are not sitting around doing nothing,” when asked about an iPhone. I’d say that statement is a strong indication that Apple has acknowledged they are working on an iPhone.
Plus they have owned the domain http://www.iphone.org for several years now.
If Apple produces an iPhone with the ease of use as good as they have achieved on the iPod, they will take, in time, a large double digit percentage of the mobile phone market. That core skill set – superior design and ease of use — of Apple’s plus Apple’s superb software assets are the key enabling Apple to conquer the leadership position in the consumer electronics industry.
I hope Apple starts with a replaceable sim-card model in Europe, where that is one of the major modes of selling mobile phones. The telecoms have no ability to stop it from happening, as the consumers rule the roost for acceptance of this type of product. If sales blossom the way I think they will, the telecos will come begging for Jobs to let them sell or give it away bundled with their own service package, but without Apple having to compromise the elegance of its design. This scenario will cause some American telecos to appoach Apple for some similar deals. The key is for Apple to not allow the telecoms to sully Apple’s brand by schlockifying the iPhone consumer experience by absurd demands to modify the interface inflicted by the telecos on mobile phone producers. Those telecos that deal with Apple will steal customers from those who don’t. That is the sort of game plan I would recommend to Apple.
“ROKR experiment showed that the current accepted thinking in terms of design in mobiles are very limited”
ROKR failed because it was clunky and ugly and limited.
SLVR would probably have been more sucessful without the retarded anticompetitive 100 song limit.
The RAZR V3 might succeed there because the non iTunes version doesn’t have the retarded software only 100 song limit.
Outside the Motorola products, there’s a heap of other mp3 phones to choose from.
The standalone MP3 player is about ready to go the way of the hula hoop.
This will be the “traditional” Music/video only iPod’s last big Christmas. Apple had better get a decent iPhone out, or watch it’s iPod business disappear.