Apple tablet seen nearing $3 billion business in first year

Posted:
in General Discussion edited January 2014
Selling an estimated 5 million units in its first year as a "base case" scenario, Apple's tablet would earn the company $2.8 billion in additional revenue and solidify it as more than a niche product, a prominent investment baking firm said Friday.



Mike Abramsky with RBC Capital Markets, the corporate and investment banking division of the Royal Bank of Canada, has projected a $600 average selling price for Apple's forthcoming tablet. That could add 30 cents of earnings per share to the company's stock, resulting in a $5- to $10-per-share valuation upside. Another $2.8 billion in revenue would be a 6 percent increase for Apple.



Those numbers assume 30 percent gross margin for the hardware, and 3 percent Mac and iPod touch cannibalization. That's what Abramsky believes is the most likely outcome, as the midpoint in a three-case scenario.



On the low end, as a "niche" product, he said the tablet would have an $800 average selling price and sell 1 million units. That would earn Apple $777 million, and amount to 12 cents of incremental GAAP EPS.



On the other hand, priced at $500, the product would be a "hit," selling 10 million units. With 29 percent gross margin, it would mean an additional $4.2 billion in revenue for Apple, amounting to 42 cents EPS.



"Anticipation for an Apple Tablet (expected Jan 27) resembles that of Moses bringing down the 10 Commandments," Abramsky wrote. "Despite high expectations, we believe Apple plans to redefine portable computing -- as the Mac redefined the PC -- by 'creating' desire for a new converged portable device with innovative touch/gestures -- with iTunes content. A 'Hit' could provide a possible new growth engine for Apple."







He went on to say that the traditional tablet market size of a million per year is likely irrelevant. Instead, the prize for Apple's device should be seen as the 150 million home PCs expected to be sold this year. That would place the addressable market, Abramsky said, at 35 million.







RBC has predicted a device with a price between $500 and $700 unsubsidized, while it would cost between $200 and $300 subsidized by a wireless carrier. Abramsky said he believes Apple is likely to release two versions of the hardware: one with Wi-Fi only, and another with both 3G and Wi-Fi.



For pricing, Abramsky cited a recent survey by ChangeWave that found most consumers would be interested in buying a tablet priced between $500 and $799. If the device is priced closer to $1,000, he said subsidies may be needed for mass-market acceptance.



Priced appropriately, the tablet would also be Apple's opportunity to cut into the booming netbook market.



"Although the tablet would not offer the breadth of features or raw performance of traditional laptops, it would deliver an optimal experience for buyers looking for user-friendly, media-centric computing at entry-level price points," Abramsky said. "The tablet may cannibalize some Mac and iPod touch buyers (est. 2-5% in scenario analysis), but the lack of Mac OS X compatibility (and emulated Windows) reduces the appeal of the tablet as a Mac replacement for Apple's traditional premium Mac buyers."



Earlier this week, The Wall Street Journal reported that Apple sees its tablet as a device that will be shared by multiple family members. Previously, analysts with investment firm Piper Jaffray had forecast an average tablet selling price of between $600 and $800 -- higher than RBC's forecast. But this week, an analyst told AppleInsider that price point "may be a little low."



Apple is widely expected to unveil the tablet at a media event scheduled for Jan. 27 at 10 a.m. Pacific time, 1 p.m. Eastern. The event will be held at the Yerba Buena Center for the Arts in San Francisco. Apple sent out invitations this week, inviting select members of the press to "Come see our latest creation."
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Comments

  • Reply 1 of 135
    $3 billion on a product no analyst has yet seen. Captain obvious says maybe they should make a few models given differing estimates. Or, just wait until they have real data. I guess they need to eat too though.
  • Reply 2 of 135
    There you go again, confusing the concept of "earn" and "revenue" (yet, elsewhere in text, equate "earnings"- correctly - to profits).



    No law against it, but it does not take much to say "make revenues of..." or "expected to have revenues of...." instead of "earn revenues of...."
  • Reply 3 of 135
    Lots to question in this analysis. For starters, I find it difficult to believe that $600 in ASP will produce a 30% gross margin, but an 18% lower ASP ($500) will lower margins by only 1% - that must be some economies of scale that Apple is able to achieve in a very short period.



    Second, how does this analysis make a judgement about how much it will add to 'GAAP earnings' without knowing whether there will be a post-paid pricing plan, which in turn would impact revenue (and hence earnings) recognition policies at Apple (as it does with the iPhone)? Or perhaps he means 'non-GAAP earnings'?
  • Reply 4 of 135
    hillstoneshillstones Posts: 1,490member
    Or, it might not sell at all. I have no interest in such a device.
  • Reply 5 of 135
    noirdesirnoirdesir Posts: 1,027member
    Quote:
    Originally Posted by anantksundaram View Post


    There you go again, confusing the concept of "earn" and "revenue" (yet, elsewhere in text, equate "earnings"- correctly - to profits).



    No law against it, but it does not take much to say "make revenues of..." or "expected to have revenues of...." instead of "earn revenues of...."



    I know the difference between earnings and revenues (in business terms) but 'earning revenues' still clearly refers to revenues. In the same way you can profit from increased revenues.
  • Reply 6 of 135
    Quote:
    Originally Posted by cwingrav View Post


    $3 billion on a product no analyst has yet seen. Captain obvious says maybe they should make a few models given differing estimates. Or, just wait until they have real data. I guess they need to eat too though.



    yes, very true

    mr abramsky has to eat, obviously
  • Reply 7 of 135
    rot'napplerot'napple Posts: 1,839member
    Can you imagine the frenzy and hype the Apple marketing Geniuses (was gonna say Guru but bit my tongue) can build marketing a never before seen, must have empty cardboard box?! Man they're good!
  • Reply 8 of 135
    phalanxphalanx Posts: 109member
    I think it will be closer to 2.8 Trillion.
  • Reply 9 of 135
    irelandireland Posts: 17,798member
    It's obvious they are not enthusiasts. These analysts will only be right if they happen to guess right, not because they had some sort of clue. The fact of the matter is any analyst predicting sales number at this point should be sacked. Yet AI reports this crap.
  • Reply 10 of 135
    These analysts are going to be so disappointed if Apple introduce a completely different product on Wednesday and all of this Tablet, Slate, Pad stuff has just been a smokescreen and a way of getting MS to use 'Slate' terminology.



    I'm sure whatever product Apple do launch on Wednesday will be a success, simply due to the Halo effect. People with iPods, iPhones and Macs will want the next product.



    Maybe a fully integrated media TV with build in internet access, Apple TV, access to the iTunes cloud, MobileMe and other services, embedded Safari, iPhotos, etc.



    Maybe an iPhone 'superlite' which looks like a bluetooth headset but is a fully functional, voice activated phone / ipod shuffle / voice guidance GPS system, ...



    And maybe the 'One more thing...' will be Steve laughing at MS 'Slate PCs'!



    Phil
  • Reply 11 of 135
    postulantpostulant Posts: 1,272member
    Quote:
    Originally Posted by hillstones View Post


    Or, it might not sell at all. I have no interest in such a device.



    I, on the other hand, can hardly wait to get my paws on one.



    - love fanboi
  • Reply 12 of 135
    ulfoafulfoaf Posts: 175member
    These estimates were obviously made with the SWAG analysis method - Systematic Wild A## Guess. Hasn't seen it, doesn't know what it does, doesn't know what it sells for ...
  • Reply 13 of 135
    irelandireland Posts: 17,798member
    Quote:
    Originally Posted by womble2k2 View Post


    Maybe a fully integrated media TV with build in internet access.



    This is my favorite device. It's coming too. I don't think it's ready yet though,  Television is coming in 2011, due to the complex nature of the content deals.
  • Reply 14 of 135
    In this perspective it's interesting to see if they are going US only to start with and if so - how soon do they go world wide. It took more than 1 year with the iPhone until many countries were added. In todays world that's forever.



    All discussion are focused on US so far (publishers, carriers and so on). For many reasons (not to mention I'm not living in US this may also be a opportunity for Apple to go global. US is still their main focus, but to grow further the international perspective is important. Indeed the market becomes much bigger. But forging deals with content providers which is global (overcoming limped iTune Stores in many countries) can be a revolution in itself. And something which would carry Apple to yet another great dimension.



    And as a shareholder I would like Apple to be even more global. That would also prevent some piracy, copy of their products and ease down the need to unlock. I'm not sure, but I think that quite a lot of jail breaking of the iPhone was done because a lot of non-US customers wanted the iPhone (including myself). Quite some volumes has been rumored to go to China also.



    Go global ASAP! That's it!
  • Reply 15 of 135
    Quote:
    Originally Posted by tumme-totte View Post




    Go global ASAP! That's it!



    Yes, there is some virtue in it. But there are also downsides, when it comes to a completely new category of product (as this one is speculated to be). Pricing, distribution, exchange rates, carrier deals, content provider deals (with their attendant cross-border licensing and IP issues - remember how long it took to get just the iTMS across borders?), assessing consumer tastes, predicting demand, etc can be a huge challenge.



    It is probably far better, on balance, to introduce in one country (esp. one that is large like the US and one that Apple understands well), learn form it, get down on the cost curve, and then do a global roll-out.
  • Reply 16 of 135
    richlrichl Posts: 2,213member
    Quote:
    Originally Posted by tumme-totte View Post


    In this perspective it's interesting to see if they are going US only to start with and if so - how soon do they go world wide. It took more than 1 year with the iPhone until many countries were added. In todays world that's forever.



    Apple's job is going to be easier this time around. They've already got carrier and content partners in a plethora of countries.



    *IF* this is a connected device, I'd expect it to launch in at least 12 markets initially.
  • Reply 17 of 135
    Quote:
    Originally Posted by ulfoaf View Post


    These estimates were obviously made with the SWAG analysis method - Systematic Wild A## Guess. Hasn't seen it, doesn't know what it does, doesn't know what it sells for ...



    i know, it's complete bullshit

    we should ask mr. abramsky if he's clairvoyant
  • Reply 18 of 135
    crowleycrowley Posts: 10,453member
    Quote:
    Originally Posted by AppleInsider View Post


    Projected... estimated... predicted... assume... assume... assume



    Bored.
  • Reply 19 of 135
    jasenj1jasenj1 Posts: 923member
    Quote:

    ... a prominent investment baking firm said Friday.



    Mmmm... What's the beta on a dozen chocolate chip cookies? How's the Debt to Equity ratio on a cupcake?



    - Jasen.
  • Reply 20 of 135
    jasenj1jasenj1 Posts: 923member
    Most importantly... Will it blend!? http://www.blendtec.com/willitblend/
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