Analyst: Apple’s ‘iPhone’ could add $6 billion in 2007 incremental revenue

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).

http://www.bearstearns.com/

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20 Comments

  1. 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….

  2. 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.

  3. 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.

  4. 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…

  5. 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…

    =]

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