If the pre-order demand for iPhone 5 is anything to go by, Apple
(
AAPL
) could well be on its way to recording one of the biggest upgrade
cycles in the history of electronic devices. Going by the past
iPhone launches, most would have expected Apple to run out of
pre-order order stock on the opening day itself. However, the rate
at which the same has happened this time gives us the first sign of
what could be another record-setting holiday quarter for
Apple.
Apple started taking pre-orders for the iPhone
5 at 3:01 a.m. ET on September 14, with shipping
expectations set for a week. That didn't last long,
however, as Apple was forced to push its shipping dates by a
week
merely an hour
after launch, with overwhelming demand causing Apple to run out of
launch day pre-order stock. In comparison, Apple had taken at
least 20 hours to run out of opening day stock for iPhone 4 and
iPhone 4S during the previous two launches. This incredibly fast
sell-out gives us an indication of the huge pent-up demand that had
built up in the previous months as people postponed buying an
iPhone in anticipation of the new launch.
With iPhone 5 availability nearing and the demand signs looking
incredibly strong, we thought it would be prudent to go back
to Apple's model and see how the success of the iPhone 5 could add
to its upside from our current price estimate. We see that if the
company is able to increase its share of the handset market to 19%
by the end of our forecast period and at the same time, see slower
declines in its average iPhone pricing, Apple's stock value could
surge by about 25% over
our $700 price estimate
.
See our complete analysis for Apple here
1. Faster increase in iPhone market share
(+15%):
The iPhone's global mobile phone market share has steadily
increased from zero at the start of 2007 to around 5.4% in
2011. We expect the iPhone's global mobile phone market share
to increase to around 15% by the end of our forecast period.
However, the iPhone is Apple's flagship product
and contributes more than 55% of our price estimate. So, even
a small outperformance with respect to its market share will have a
huge impact on Apple's valuation.
The company has been posting average annual growth of close
to 90% in iPhone sales over the last three years. Last year's
holiday quarter saw the iPhone set a new quarterly record of 37
million unit sales, with the phenomenal success of iPhone 4S. With
iPhone 5 rumors being a drag on iPhone sales ahead of the new
phone's launch, it will be important that the iPhone 5 continues on
the 4S' success and more than offsets the previous quarter's weaker
demand. If the iPhone 5 manages to do that (with initial signs
pointing to the same) and Apple continues to set the same
scorching pace in the coming years, the upside to our price
estimate could be huge.
A number of factors could help Apple maintain its historical
growth rate. The rapid expansion of operations in overseas markets,
the addition of new carriers, and iPhone sales in the as-yet
largely unexplored emerging markets present a huge opportunity to
increase market share. (see
Apple Is Headed To $700 With China Growth And
iPhone 5
)
China, for example, holds a lot of promise for Apple
considering the huge 2G subscriber base that the carriers there are
trying to transition to 3G (3G penetration is currently only about
18% in China and growing at a good rate). A deal with China
Mobile, the largest carrier in the world by subscriber base, looks
likely now that it seems Apple has used Qualcomm's MDM9615 chipset
for LTE, which incidentally also has TD-SCDMA support. Such a deal
could instantly double iPhone's addressable market in China and act
as the next big boost to its stock, considering that the iPhone
accounts for more than 55% of the company's value by our estimates.
(see China Mobile In Talks To Offer The iPhone; Can Alone Take
Apple Past $800)
Meanwhile, the recent patent win that Apple scored over Samsung
could lead to a ban on the latter's devices in the U.S.
and the developed markets may see little traction for
competing smartphones such as the BlackBerry and the Lumia, both of
which could further bolster Apple's share.
These triggers could propel iPhone's market share higher than we
currently forecast. There could be an upside of 15% to our price
estimate if the iPhone market share exceeds our current
end-of-period estimate by about 4 percentage points.
2. Slower decline in iPhone pricing (+10%)
:
We currently forecast the average iPhone price to decline to
around $400 by the end of Trefis forecast period as Apple
enters emerging markets and increasing competition forces Apple to
cut prices, beyond the customary slashing of prices of the older
models in the future.
However, iPhone's average pricing has increased over the last
two years as continued demand for the newer as well as higher-end
versions (32GB/64GB) of the iPhone has improved the mix while Apple
has reduced the prices of the older ones. Traditionally, Apple has
targeted only the high-paying customers and not aimed for a mass
market presence, unlike its competitors.
Additionally, the recent patent win against Samsung could impact
the latter's ability to flood the market with competing markets,
thereby limiting choice for customers. It could also see many
Android partners trying to nurture rival struggling platforms such
as Windows Phone and BlackBerry, buying Apple enough time to defend
its lofty margins and high ASPs. (see Apple Patent Tide Could
Lift Microsoft, Nokia and Maybe Even RIM)
These factors could mean that iPhone pricing could decline at a
slower rate than what we forecast. There could be an upside of 10%
to our estimate for Apple's stock if iPhone pricing declines only
to about $460 by the end of our forecast period.
Combine the 15% upside from the iPhone's growth in market share
to the 10% upside from slower declines in iPhone pricing, and we
arrive at a price estimate of $875 for Apple.
Understand
How a Company's Products Impact its Stock Price at Trefis