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).
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