iPhone Ubiquity

The iPhone is the coolest gizmo I have ever owned.  Nothing, compares.  Not my baseball cards, my Camera, stereo high def-TV, convertible, toaster oven, None of it.  Not even my Mac Plus (which back in the day was pretty badass)

The iPhone is simply put the single most compelling computing device to hit the market since the first PCs 30 years ago. 

It is clear that the iPhone as a handset and platform are so dramatically different and better than current market offerings that sales growth will continue to be freakish.

Gene Munster Put Apple on its "Alpha"  (Piper Jaffray)List this week indicating that there is significant short term upside in the stock of Apple (AAPL).  While mentioning that he expects Apple to sell 45 Million handsets next year.  45 MILLION.  I have not seen another analyst reporting a number that big.

Reports of manufacturing runs of 800,000 a WEEK being reported by several sources.

Munster mentioned Apples Back to School promotion which gives buyers a $299 incentive to purchase a Mac  (Free iPod woo hoo).

So I did some analysis of my own.  and projected out Sales thru 2014.  It is a Projection so by definition it will be wrong. 

Assumptions

• 15-20% annual price declines
• 10-15% cost declines
  
• iPhone kabuki deferred earnings
• 30% market share in 2014 (Nokia has 40% today you think thats going to hold?)
  
• 37% tax rate
• Declining growth in the Handset market 20-7%

I project Apple with 30% of the handset market in 2014.  (I made it up)  Nokia has 40% of the market currently so it is not unreasonable to assume that one company could have a share of that size.  There will be competition from someone we don't know who yet but someone will come up with a compelling competitor to the iPhone platform.

As a thought experiment Apples earnings per share could be 12 bucks a share from iPhone sales ALONE in 2014.  Oh and BTW 23 Billion in additional deferred earnings.  

Enjoy.

Let me know.  I can send you the Excel...

The writer has been long AAPL for a long time.  The writer is not giving advice (call your mother) am not telling you to buy this stock, and think that people that don't do their own research are lazy and doomed to failure 

Apple Everywhere… Margins, Growth and Pervasive Appleness

In the 4th quarter last year Apple earned 904 million dollars on 6.2 billion in income with a Gross Margin of 33.6%. They are predicting 905 million in income on 7.8 billion in income with Gross Margins of less than 32%.  (and 30% for 2009)  Apples Margins may be coming in but they are going to earn more than a 1.00 per share in the 4th quarter this year ( July-Sept 2008 )

Apple has freaked out all the analysts by changing the “Code” they use for what their earnings predictions mean.  Apple is a large multinational company with a large range of products and  sales in 100 countries (yea I made that up) predicting how many for how much and at what cost is a crap shoot at best.  So the “Code” becomes a way for the analysts to come up with a nice safe prediction (safe because it will be close to all of the other predictions.  It is hard to get fired/sued if you have the same prediction as everyone else) that will also be safely leapfrogged by actual results.  

That said Apple has made it clear that they are changing the game in the coming quarters and Gross Margin is expected to suffer as a result.  I have written before Hereand Here about some of the forces at work narrowing margins for Apple.  Apple is not introducing A (meaning one) product that is going to narrow margins.  They have a long range plan to take over the world Grow their business. 

Apple everywhere is a strategic, systematic broadening of Apples scope while simultaneously increasing the barriers to entry for their competitors.

More and lower priced computers, more and higher priced computers more and lower priced phones, mobile computing devices …. Apple is going to meet the market where they are and spend a little less time enticing the market over to them.  How long until the retail price of an iPhone hits $50 bucks? (subsidy still FAT)

RBC today predicted sales of 3 million Macintosh computers in the quarter.  Why not.  The back to school market has shown huge growth (50% Plus over the last couple years) and Apple increased their annual back to school iPod offer to include not a $150 nano but a $300 iPod Touch.  Narrower margins…

Hard to say what comes in the short term but I suspect more computing options for less than $1,000.  Some very competitively priced portables, and more iPhone and iPod options.  The name of the game is Network externalities and Apple knows if you have any one of their products the chances of your taking a chance on another one go up exponentially (yea I made that up too but it goes up a lot) 

iPhone Bonanza

iPhone Sales continue to impress as rumors of 800,000 iPhones per week production numbers in China are stunningly huge. Todays news that the iPhone will be sold at Best Buy locations is another example of Apples now clear strategy of an iPhone in every pot.

Up until recently Apple has been a niche competitor in a very large pool of consumer electronics. They have decided for structural reasons particularly for the iPhone that they want to sell to the broadest possible market in order to create network externalities that will give them a sustainable advantage in the market for years to come. Steve Jobs alluded to it the other day when he mentioned that he sees the long term advantage the iPhone will have will be the software available for it.

In order to execute on that vision Apple has broadened both its sales channels and markets. Selling through third parties however will nessesitate narrower margins