Investment firm believes Apple's building 4GB iPhones
A 4GB version of the iPhone once rumored to play a major role at Wal-Mart discount chains was a no-show in 2008, though one Wall Street analyst now says there's evidence the device may turn up this year.
Previewing Apple's earnings report due next Wednesday, UBS's Manyard Um said he's concerned that iPhone shipments for the December holiday quarter could come in below his 5 million unit estimate, representing a considerable sequential decline from the 6.9 million units shipped during the September quarter.
However, "our UBS semis team and our checks indicate a new 4GB iPhone which may be helping to increase build rates," he wrote in a report to clients. Specifically, Apple's said to have placed manufacturing orders for 7 million iPhones in each of the first two calendar quarters, 5 million in the third quarter, and 4 million in the fourth quarter, all of which are seen as "relatively good numbers."
Still, the analyst took pause to caution his investment clients over the volatility of these said build rates, which "have seen cuts in the past and may change" or drive volume iPhone shipments at the expense of the company's historically high average selling prices (ASPs) and gross margins.
"Additionally, sell-through remains a concern and although we think a 4GB version would stimulate demand, we think it would likely cannibalize both the 8GB & 16GB models and the iPod Touch to a lesser extent," he added.
Based on some quick number crunching, Um estimates that pure cannibalization by a potential 4GB iPhone with no incremental elasticity would negatively impact fiscal year 2009 pro forma per share earnings by $0.27. However, should the advent of a 4GB model drive an incremental 1.5 million unit sales, it would offset this impact assuming Apple maintains 40 percent profit margins on the device, he said.
That's a big if, according to the analyst, who said his "main concern remains the potential macro impact on Apple's business given its high ASPs." Although recent MacBook refreshes helped drive some momentum last quarter, he remains "concerned that consumer spending will ultimately hit Apple’s high-end products more materially," potentially applying downward pressure to ASPs and gross margins.
For the just-ended December quarter, Um expects revenues to fall within the guided range of $9-$10 billion thanks to the MacBook refreshes and reseller holiday promotions. He sees gross margin coming in better than the 30-31 percent guidance due to better-than-expect commodity pricing, and estimates per-share earnings to be at or above the high end of the guided $1.06-$1.35 range.
In his report to clients, Um did not specify the breed of iPhone that's rumored to arrive with 4GB of storage, and there's an outside chance his findings could be related to persistent reports of an "iPhone nano," which was most recently rumored to be a device that may cater to international markets that demand certain concessions on Apple's part.
In December, there were also rumors that discount chain Wal-Mart would begin selling a 4GB iPhone at a greatly reduced price of $99. The reports did not materialize.
UBS maintains a Neutral rating and $110 price target on shares of Apple.
Separately on Wednesday, JPMorgan analyst Mark Moskowitz lowered his price target on the Cupertino-based company to $102 from $104, citing weakening demand for the iPhone overseas.
"Our conversations with industry contacts suggest that U.S. demand pull for iPhone has held but that Europe has softened," he said.
Previewing Apple's earnings report due next Wednesday, UBS's Manyard Um said he's concerned that iPhone shipments for the December holiday quarter could come in below his 5 million unit estimate, representing a considerable sequential decline from the 6.9 million units shipped during the September quarter.
However, "our UBS semis team and our checks indicate a new 4GB iPhone which may be helping to increase build rates," he wrote in a report to clients. Specifically, Apple's said to have placed manufacturing orders for 7 million iPhones in each of the first two calendar quarters, 5 million in the third quarter, and 4 million in the fourth quarter, all of which are seen as "relatively good numbers."
Still, the analyst took pause to caution his investment clients over the volatility of these said build rates, which "have seen cuts in the past and may change" or drive volume iPhone shipments at the expense of the company's historically high average selling prices (ASPs) and gross margins.
"Additionally, sell-through remains a concern and although we think a 4GB version would stimulate demand, we think it would likely cannibalize both the 8GB & 16GB models and the iPod Touch to a lesser extent," he added.
Based on some quick number crunching, Um estimates that pure cannibalization by a potential 4GB iPhone with no incremental elasticity would negatively impact fiscal year 2009 pro forma per share earnings by $0.27. However, should the advent of a 4GB model drive an incremental 1.5 million unit sales, it would offset this impact assuming Apple maintains 40 percent profit margins on the device, he said.
That's a big if, according to the analyst, who said his "main concern remains the potential macro impact on Apple's business given its high ASPs." Although recent MacBook refreshes helped drive some momentum last quarter, he remains "concerned that consumer spending will ultimately hit Apple’s high-end products more materially," potentially applying downward pressure to ASPs and gross margins.
For the just-ended December quarter, Um expects revenues to fall within the guided range of $9-$10 billion thanks to the MacBook refreshes and reseller holiday promotions. He sees gross margin coming in better than the 30-31 percent guidance due to better-than-expect commodity pricing, and estimates per-share earnings to be at or above the high end of the guided $1.06-$1.35 range.
In his report to clients, Um did not specify the breed of iPhone that's rumored to arrive with 4GB of storage, and there's an outside chance his findings could be related to persistent reports of an "iPhone nano," which was most recently rumored to be a device that may cater to international markets that demand certain concessions on Apple's part.
In December, there were also rumors that discount chain Wal-Mart would begin selling a 4GB iPhone at a greatly reduced price of $99. The reports did not materialize.
UBS maintains a Neutral rating and $110 price target on shares of Apple.
Separately on Wednesday, JPMorgan analyst Mark Moskowitz lowered his price target on the Cupertino-based company to $102 from $104, citing weakening demand for the iPhone overseas.
"Our conversations with industry contacts suggest that U.S. demand pull for iPhone has held but that Europe has softened," he said.
Comments
Now, why on earth would Apple produce a 4gb iPhone. The cost savings cannot be that great. Its like Apple decided to produce a 60gb MacBook Pro to cut costs. It makes no sense. It makes sense to create a lesser model with 4gb, but not a straight up iPhone. 8gb is pushing the lowest acceptable storage limit as it is.
I don't know what the material cost, mfg cost, support cost, and size costs are for an extra 4GB, but actually a 4GB iPhone could be really useful. These days I listen to Pandora or a streaming radio station almost as often as I listen to my own music, and I only carry around the last couple months of photos. Apps tend to take a few megabytes not gigabytes. This means that I can get by with a pretty minimal footprint and still have a really nifty device.
I don't know what the material cost, mfg cost, support cost, and size costs are for an extra 4GB, but actually a 4GB iPhone could be really useful. These days I listen to Pandora or a streaming radio station almost as often as I listen to my own music, and I only carry around the last couple months of photos. Apps tend to take a few megabytes not gigabytes. This means that I can get by with a pretty minimal footprint and still have a really nifty device.
I respectfully disagree. Not having enough space is a constant distraction and annoyance. People don't like wondering if they have enough space to do this or that.
It's too big a step backwards for too little gain.
I really don't see how a $99 phone will spur that many more buyers. This $100 price reduction brings cost of ownership over a 2 year period for a single line plan from $2,000 to $1,900-hardly enough to spur some rush to ownership ($30/month data, $40/month voice, 200 SMS).
If Apple wants to sell a LOT of iPhones-someone there needs to get with AT$T and offer some sort of affordable data plan (like $15) coupled with some sort of affordable SMS plan (like $5 for unlimited). THAT would spur ownership. Total 2 year cost would still be $1,540-which is a lot-But nearly $500 less than now and would include unlimited SMS. Course, AT$T would never go for it-they are the M$ of the cell phone world and they just gotta have that extra $500 over two years...
I respectfully disagree. Not having enough space is a constant distraction and annoyance. People don't like wondering if they have enough space to do this or that.
It's too big a step backwards for too little gain.
I know several people who don't use their iPhone for music and/or video. If you're only using the iPhone as a phone, 4GB is plenty.
I respectfully disagree. Not having enough space is a constant distraction and annoyance. People don't like wondering if they have enough space to do this or that.
It's too big a step backwards for too little gain.
I have a 16GB iPhone and my wife have a 8GB iPhone. I have around 9GB of used space and my wife have 1.5GB used! We have exactly the same music and photo libraries. I keep all my music and half my photos in my iPhone but she only have few songs and few photos. She never exceeded the 2GB mark and therefore a $50 to $100 saving for 4GB would have been nice. Not everyone buys an iPhone for music. Most people want the internet, mail, and/or Apps.
At this point a lower priced handset is not going to bring any more people to the iPhone buffet. I think they have pretty much gotten all the people who like the iPhone and are willing to pay the subscription rates that go with it. The next bump in sales will only come with significantly lower subscription rates. Or perhaps even an iPhone with voice-only service plus wifi and GPS. I'd go for that one.
Which is another way of saying "the smartphone segment has seen all the growth it's going to, since carriers charge a lot for smartphone data plans."
People really, really need to get off this "iPhone rates are outrageous" thing. If you have a problem with prevailing data costs, fine. But it's not unique to the iPhone.
I have a 16GB iPhone and my wife have a 8GB iPhone. I have around 9GB of used space and my wife have 1.5GB used! We have exactly the same music and photo libraries. I keep all my music and half my photos in my iPhone but she only have few songs and few photos. She never exceeded the 2GB mark and therefore a $50 to $100 saving for 4GB would have been nice. Not everyone buys an iPhone for music. Most people want the internet, mail, and/or Apps.
So you are expecting a $100 difference in cost to you for a capacity increase that MIGHT cost Apple $2.50? This is the problem I see with this 4gb iPhone argument, it just isn't going to impact price in a significant way and in any event you are shooting at a moving target when it comes to flash prices.
The only possible way I could see this happening is if AT&T and Apple wanted a cheap device for the pay as you go market that doesn't seriously encroach on iPhone's feature set. The rumored Nano could be a sign of such a device. That is a cell phone targetted at an entirely different marketing program. Nano would then be a device specifically engineered not to appeal to current iPhone buyers, probably by supporting 2 G only.
In any event the number one issue is they falling price of flash in general. In the short term I expect Apple will simply bump up baseline capacity in the iPhone's, it just doesn't make sense to go backwards in most cases. The exception here is if Apple has an improved iPhone in the wings and this 4GB would then become the low end iPhone. For a new high end iPhone it should be possible for Apple to cram a lot of stuff into a new iPhone considering some of the technologybreleases I've seen. This new iPhone would be easily differentiated from the current model. Such a phone could be improved all around from processor core to camera to wifi hardware and everything else. This would make the 4GB iPhone the poo' mans iPhone.
Dave
I respectfully disagree. Not having enough space is a constant distraction and annoyance. People don't like wondering if they have enough space to do this or that.
It's too big a step backwards for too little gain.
I know where you're at here. I stood in line at launch, the store sold out of 16GB phones so I picked up an 8GB instead. My old BlackBerry's screen was broken for about two months at that point and I just desperately wanted a phone. So, I settled. Whoops!
I have a 16GB iPhone and my wife have a 8GB iPhone. I have around 9GB of used space and my wife have 1.5GB used! We have exactly the same music and photo libraries. I keep all my music and half my photos in my iPhone but she only have few songs and few photos. She never exceeded the 2GB mark and therefore a $50 to $100 saving for 4GB would have been nice. Not everyone buys an iPhone for music. Most people want the internet, mail, and/or Apps.
That's why I RESPECTFULLY disagree. But even if you don't use the space on a regular basis it's nice to have on a ten hour flight, or when you need a portable hard drive in a jam, or whatever.
And back to an earlier point made above: This does virtually NOTHING for total cost of ownership. $100 off a two year contract - what's the point?
I admit I'm surprised at how many people disagree with me. But I still think a size as small as 4GB would be more of a deterrent than a boon.
Whether the cost is $100 or $300 for the device, you're still on the hook for a minimum of ~$2000 for two years of service.
Show me a reasonably featured iphone plan for ~$50/mo and I'll show you your millions of new subscribers.
Which is another way of saying "the smartphone segment has seen all the growth it's going to, since carriers charge a lot for smartphone data plans."
People really, really need to get off this "iPhone rates are outrageous" thing. If you have a problem with prevailing data costs, fine. But it's not unique to the iPhone.
I'm glad someone said something so I wouldn't have to.
If anything all the complaints about how expensive the iPhone data plan is makes you realize that the iPhone is exposing smartphones to people that have never looked into them and their offered plans before, which can only make smartphone marketshare rise not flatten out.
I'm glad someone said something so I wouldn't have to.
$1 per day for unlimited data? I have no problem with that. But it should include texting.
I don't know why ANY of these guys don't talk about true cost of ownership of a 3G. I have 2-on a family plan-my cell bill is $130 before taxes which includes ONLY 200 text messages per line.
I really don't see how a $99 phone will spur that many more buyers. This $100 price reduction brings cost of ownership over a 2 year period for a single line plan from $2,000 to $1,900-hardly enough to spur some rush to ownership ($30/month data, $40/month voice, 200 SMS).
If Apple wants to sell a LOT of iPhones-someone there needs to get with AT$T and offer some sort of affordable data plan (like $15) coupled with some sort of affordable SMS plan (like $5 for unlimited). THAT would spur ownership. Total 2 year cost would still be $1,540-which is a lot-But nearly $500 less than now and would include unlimited SMS. Course, AT$T would never go for it-they are the M$ of the cell phone world and they just gotta have that extra $500 over two years...
Thank you!
People really, really need to get off this "iPhone rates are outrageous" thing. If you have a problem with prevailing data costs, fine. But it's not unique to the iPhone.
It is unfortunate that data is so expensive. I remember racking up hundreds of dollars a month on Compuserve in the early days before the Internet was widely available. Now that kind of service is $10. At some point I would love to see free, city wide, secure, wifi instead. Of course I would settle for just more bike lanes but I'm probably not going to get that either, especially in this economy.
I don't know why ANY of these guys don't talk about true cost of ownership of a 3G. I have 2-on a family plan-my cell bill is $130 before taxes which includes ONLY 200 text messages per line.
I really don't see how a $99 phone will spur that many more buyers. This $100 price reduction brings cost of ownership over a 2 year period for a single line plan from $2,000 to $1,900-hardly enough to spur some rush to ownership ($30/month data, $40/month voice, 200 SMS).
If Apple wants to sell a LOT of iPhones-someone there needs to get with AT$T and offer some sort of affordable data plan (like $15) coupled with some sort of affordable SMS plan (like $5 for unlimited). THAT would spur ownership. Total 2 year cost would still be $1,540-which is a lot-But nearly $500 less than now and would include unlimited SMS. Course, AT$T would never go for it-they are the M$ of the cell phone world and they just gotta have that extra $500 over two years...
Perhaps if you were reaping all the benefits of AT&T's profits, you'd be singing a different tune. Successfully businesses price commodities to what customers are willing to pay. If the price is too high, demand decreases, and prices (profit margins) must decrease with demand to stimulate growth.
People are willing to pay current prices for the current services. Maybe when current data plan pricing has saturated the market, the big telcos will decrease the price to stimulate more market growth.
I wish that was soon, but I highly HIGHLY doubt it.