Sub-$300 iPhone, 3G model seen driving 45M unit sales in 2009

[AppleInsider]

Investment bank Piper Jaffray is out with a bullish research note on Apple today predicting a diversification of the iPhone line into a multi-tiered family of handsets that will combine for sales of 45 million units next year.

The 4-page report, authored by analyst Gene Munster, attempts to outline the future direction of the iPhone family for Apple shareholders, offering guidance on how to best think about unit growth, changes in revenue share, and strategic shifts that may play out as the company enters new international markets like China where local dynamics may complicate its model of working with only one exclusive carrier.

"While most investors view our estimate of 45 million iPhones in 2009 as outrageously aggressive, we are maintaining our estimate based on several factors," Munster wrote. "First, we expect Apple to introduce a 3G iPhone model with additional features in the next 3-6 months. We also expect Apple to offer an entire family of iPhones by January 2009 at the latest including lower priced models that decrease the average selling price (ASP)."

More specifically, the analyst expects a 3G model to arrive in June followed by a "perhaps more significant" introduction of a model by next year that will be priced between $200 and $300, addressing a more price sensitive market. As such, he expects iPhone ASPs to drop from $489 in 2007 to $365 in 2008 to $314 in 2009.

This pattern would mirror the path taken by Apple as it matured the iPod family, he said, where a slow by steady diversification saw the company enter lower price points with every new revision of the player. However, he noted that the iPhone's unit growth curve stands to be significantly steeper than the iPods, given that Apple sold more iPhones in the first two days of sales than it did in the first three quarters of iPod sales.

"And the company did not sell over 2 million iPods in a quarter until the iPod's third year of sales, whereas the company sold over 2m iPhones in the second full quarter of sales," Munster added. "In sum, we believe the iPhone is a full 2-3 years ahead of the iPod in terms of its historical growth pattern."

Compared to iPod units, which grew a radical 409 percent between Apple's fiscal 2004 and 2005, the analyst is modeling iPhone units to grow slightly slower at 304 percent between fiscal 2008 and 2009, given some uncertainty as to how quickly the company roll out cheaper models.

Munster's estimates also take into account the continued international rollout of the handset, which he believes will double the addressable market for the device every year for the next two years. With 3.7 million units having been sold through December via 6 carriers (who combined for a subscriber base of 153 million), he estimates the iPhone's penetration into this addressable market to be just 3 percent.



One key component of the international iPhone rollout is of course China, where market dynamics complicate Apple's business model of exclusivity, leading the analyst to believe the company will likely need to alter its terms in order to launch the device in conjunction with a carrier like China Mobile that sports over 370 million subscribers.

"We have spoken with people close to China Mobile and our conversations lead us to believe that Chinese carriers are unlikely to sign a revenue sharing agreement with Apple," he wrote. "This is due in part because of the 70 percent market share enjoyed by China Mobile. The bottom line is that the mobile phone market is less competitive in China than it is in the US and Europe."

As a result, China Mobile appears unwilling to pay the monthly revenue sharing of approximately $15 per month which Munster estimates other exclusive iPhone carriers are currently paying Apple. In time, that may force the company to alter its strategy of signing exclusive revenue sharing agreements with its partners in Asia, which he believes will enable it to sell the iPhone in China by the middle of next year.

In support of this theory, the analyst pointed to recent comments from chief operating officer Tim Cook, who revealed at an investor conference last month that Apple is "not married to any business model" and is instead "married to ... shipping the best phones in the world."

In the event that Apple does forgo its present revenue share model and exclusive carrier relationships, it would likely seek a one-time subsidy from each carrier per iPhone sold.

"We believe the early hype surrounding the launch of the iPhone enabled Apple to garner steep revenue sharing agreements for the 'must have' device from the initial carriers like AT&T, O2, and T-Mobile," Munster said. "However, as the iPhone becomes an established player in the mobile phone market and competitive offerings become available, Apple may not be able to command the exclusive agreements with high revenue sharing plans as it did initially."

The Piper Jaffray analyst maintains a Buy rating and $250 price target on shares of the Cupertino-based Apple.

[ View this article at AppleInsider.com ]

[jpellino]

The only iPhone I ever considered were the blowout 4GB at $299 when the dropped both the price and the 4GB.

I'm not sure how long the Touch and Classic can overlap - I'd argue for status quo Shuffle & Nano, then a Touch at $249 and iPhones at $299 and $399.

[satchmo]

45m iPhones by 2009? Keep dreaming!

As an Apple stockholder, I'd love that to happen, but this is simply blowing smoke and grabbing headlines.
We're lucky if we make the 10m mark for 2008. Plus much of this speculation is contingent on China getting on board.

[dbirling]

Originally Posted by satchmo

45m iPhones by 2009? Keep dreaming!

As an Apple stockholder, I'd love that to happen, but this is simply blowing smoke and grabbing headlines.
We're lucky if we make the 10m mark for 2008. Plus much of this speculation is contingent on China getting on board.

Why would communist China want to buy the very product they make at a much higher price? Correct me if wrong... but doesn't owner ship and things like patents go against their ideals? There will be nothing to stop them from knocking off the iPhone, and then having China mobile use that!

[malckwan]

What would a lower price point iPhone look like, one wonders. There doesn't seem to be much in terms of features that could be taken out to reduce the price of manufacturing it and still have it be an attractive item to consumers.

More likely, higher end features will be added to the line as a premium iPhone and the existing line bumps down the price point gradient with minor capacity increases at most.

[Adjei]

Originally Posted by satchmo

45m iPhones by 2009? Keep dreaming!

As an Apple stockholder, I'd love that to happen, but this is simply blowing smoke and grabbing headlines.
We're lucky if we make the 10m mark for 2008. Plus much of this speculation is contingent on China getting on board.

What will you say if they do sell that much..

[GQB]

Originally Posted by malckwan

What would a lower price point iPhone look like, one wonders. There doesn't seem to be much in terms of features that could be taken out to reduce the price of manufacturing it and still have it be an attractive item to consumers.

While I have no idea if the 'iPhone Nano' (or whatever it would be called) will ever materialize, the answer to your question is simple.
If I could have a Ver 1 Nano form factored iPhone that let me handle my call, callback, quick-dial and phone book sync requirements with the ease with which they're handled on the iPhone, I'd snap one up in a second. The only reason they won't is that it would cannibalize too many other of their products
After what, 15 years of making phones, not one manufacturer other than Apple has come up with a simple, usable phone for chrissakes.
Apple could come out with a $100 simple phone that blows away Nokia et al within a year. (Motorola's already dead, just hasn't fallen over yet.)
I just don't think they're thinking that small.

[jd051572]

I can see Apple going with a smaller china mobile company, at once increasing competition in china, getting shared subscription revenue, and still sell a lot of phones due to the huge absolute numbers of even a small percentage of the entire china market.

[studiomusic]

Originally Posted by satchmo

45m iPhones by 2009? Keep dreaming!

As an Apple stockholder, I'd love that to happen, but this is simply blowing smoke and grabbing headlines.
We're lucky if we make the 10m mark for 2008. Plus much of this speculation is contingent on China getting on board.

Fellow stock holder here... it's 45m by the END of 2009.
If they do come out with a cheaper version, and a 3g version, and open new markets including China... it's very possible and in my view (as others), pretty likely.
Buy more AAPL if you can!

[Constable Odo]

I can only say that 45 million iPhones being sold in 2009 is an unbelievable figure. One-quarter of the people in China wll have to buy an iPhone. I'm not saying Apple isn't capable of selling that many, but that's such a big number. I guess that's the equivalent of 4% of the handset market in a year's time. Can Foxconn handle producing that amount of iPhones?

[wbrasington]

Gene is usually above the traps of other followers of Apple, in that he bases his calls on facts as he sees them.

In this case, he's trying to cover up what's happening with "making stuff up"

There's no Nano phone, to say Apple can get to the number he expected by coming out with new models, that would sell when the current one(s) won't is CYA at it's worst.

Gene, shame on you.
I can come up with details of how Apple could sell 100 million phones in 2009.
Unfortunately, when you don't require any references to what will or can happen in the real world, you're estimates are useless.

Shame on Gene for such a waste of time in this news.

[aplnub]

aggressive was an understatement...

[satchmo]

Originally Posted by Adjei

What will you say if they do sell that much..

I'd say I was wrong.

But I'd be laughing all the way to the bank as Apple stock would be way up.

[JeffDM]

Originally Posted by Constable Odo

I can only say that 45 million iPhones being sold in 2009 is an unbelievable figure. One-quarter of the people in China wll have to buy an iPhone. I'm not saying Apple isn't capable of selling that many, but that's such a big number. I guess that's the equivalent of 4% of the handset market in a year's time. Can Foxconn handle producing that amount of iPhones?

45 million is maybe 4% of China's total population, not a quarter. And China is about 1/6th the global population. 45 million might be about 3% of the market (maybe 1.5B phones sold in 2009), taking about a third of the high end.

I don't think it's a new number for 2009, I think I dismissed it last year, but maybe it's doable. As the cost goes down and new models are added to add the features that are being requested, and it's officially distributed in more countries, I really don't see that number being a big problem.

Right now, I'm mostly waiting for my current contract to expire, I'm sure that by the time that happens, just about everything I want will be available.

[JeffDM]

Originally Posted by jpellino

The only iPhone I ever considered were the blowout 4GB at $299 when the dropped both the price and the 4GB.

There's a chance that the current model will go down to that price.

I'm not sure how long the Touch and Classic can overlap

I don't see the problem there. They serve different wants and people with different personalities. Apple is extremely unusual in trying to not have two products at the same price, and I think it's a bit more extreme than they need to be, where other companies generally have too many products.

[Cory Bauer]

The problem with this absurd predictions is that stockholders hold their expectations to them instead of Apple's own sales predictions. Now watch the stock crash when Apple doesn't announce they've sold a gajillion-bazillion iPhones.

[Kasper]

Originally Posted by satchmo

45m iPhones by 2009? Keep dreaming!

As an Apple stockholder, I'd love that to happen, but this is simply blowing smoke and grabbing headlines.
We're lucky if we make the 10m mark for 2008. Plus much of this speculation is contingent on China getting on board.

For the record, Gene's prediction, the way I read it, is more bold than this. He's estimating 45 million iPhones to be sold IN 2009, not by the end of 2009. He's modeling Apple to sell that many in 12 months...

Best,

K

[Isomorphic]

45M?

The limiting factor here is the carriers and the revenue-sharing model--not Apple's ability to execute.

I can't just go down to the store and buy an iPhone like an iPod; I have to sign over a part of my soul to AT&T. AT&T therefore prevents me from buying an iPhone.

Until Apple has cheap/entry iPhones (Nanos?), and iPhones on all carriers, they will never "blow away" Nokia.

[DanUK]

Oh Gene, you so crazy.

It seems every week one of these analysts come out with a forecast based on reading rumors on sites less credible than this one.

And Munster is, as everybody knows, the biggest 'fanboy' of them all!

I would however dearly love to be proved wrong.

[frankie]

Does anyone know how much longer the AT&T contract with Apple is? I think it was something like 5 years...Maybe Apple should break their contract and open it up to all carriers. I don't have have an iphone because I'm halfway into a 2 year contract with Sprint....

This exclusive tying of a product to 1 carrier seems like an outdated model anyways...

[Ireland]

27 million iPhones will be sold in 2008.

[TenoBell]

Does anyone know how much longer the AT&T contract with Apple is? I think it was something like 5 years...Maybe Apple should break their contract and open it up to all carriers. I don't have have an iphone because I'm halfway into a 2 year contract with Sprint....

Its been reported at 5 years. But I've never heard it officially confirmed.

Apple established the exclusive deals so that the it could negotiate the plans the iPhone would be sold under. It also gives Apple a stable partner as it builds the iPhone platform.

The chances of the iPhone going to Sprint are slim to none. Sprint is hemorrhaging its customer base. Sprints 4G plans are WiMax. While everyone else are planning to use LTE.

[solipsism]

Rarely we see the analysts consider many future aspects of technology and distribution. With today's iPhone and countries that number is unachievable, but with a cheaper model, 3G model and many more countries it is not.

China has an emerging middle class. These people will eat up the iPhone and otherwestern items and not local knockoff, even they manufactured on home soil. We've seen it many times before.

Also, we don't the profit-sharing criteria. Is it every phone Apple produces for x many years? Will Apple use a loophole to screw over AT&T?

With the version 2 software and 3G imminent most people's complaints are solved. The last remaining issue is the price. How many US citizens are going to use their $600 on bills and not something non-essential? I know several who have expressed get a 3G iPhone with their refund.

PS: I what at WMC in Miami this past week and saw iPhones everywhere. Though, the city is
pretty fashionable. With 30% of the antendees not from the States I wonder if some used the event as an opportunity to get a cheap iPhone.

sent from my iPhone

[desarc]

Gene's predictions are just guesses.

this analysis is based on [what we know is inevitable, but still] RUMORS of a 3G iPhone, imaginary new models of iPhone, price breaks based on what the iPod did 5 years ago, and sales figures based on the iPod [but only after year three]. these are cell phones, not pmp's. so let's take a 409% growth and say it's 304%. awesome.

i want this job. even weathermen need to be more accurate than this.

[SpamSandwich]

Originally Posted by satchmo

45m iPhones by 2009? Keep dreaming!

As an Apple stockholder, I'd love that to happen, but this is simply blowing smoke and grabbing headlines.
We're lucky if we make the 10m mark for 2008. Plus much of this speculation is contingent on China getting on board.

Munster is out of his frickin' mind. Good thing I'm not paying for his "analyses".

[SpamSandwich]

Originally Posted by JeffDM

45 million is maybe 4% of China's total population, not a quarter. And China is about 1/6th the global population. 45 million might be about 3% of the market (maybe 1.5B phones sold in 2009), taking about a third of the high end.

I don't think it's a new number for 2009, I think I dismissed it last year, but maybe it's doable. As the cost goes down and new models are added to add the features that are being requested, and it's officially distributed in more countries, I really don't see that number being a big problem.

Right now, I'm mostly waiting for my current contract to expire, I'm sure that by the time that happens, just about everything I want will be available.

I doubt Gene has ever been to China, so he's unaware of what Apple faces once they hammer out an agreement.

[SpamSandwich]

Originally Posted by Kasper

For the record, Gene's prediction, the way I read it, is more bold than this. He's estimating 45 million iPhones to be sold IN 2009, not by the end of 2009. He's modeling Apple to sell that many in 12 months...

Best,

K

Why must we perpetuate the hairsplitting? "In" is the same thing as "by the end of". Don't feed the loons.

[quinney]

Originally Posted by dbirling

Why would communist China want to buy the very product they make at a much higher price? Correct me if wrong... but doesn't owner ship and things like patents go against their ideals? There will be nothing to stop them from knocking off the iPhone, and then having China mobile use that!

China is not really communist any more. They joined the World Trade Organization
in 2001 and must obey (or at least give the appearance of obeying) things like
intellectual property or face sanctions from other member countries, whose commerce
supports China's economic health.

[SpamSandwich]

Originally Posted by Ireland

27 million iPhones will be sold in 2008.

I'll see your 27 million and raise you 60 million!

[solipsism]

Rarely we see the analysts consider many future aspects of technology and distribution. With today's iPhone and countries that number is unachievable, but with a cheaper model, 3G model and many more countries it is not.

China has an emerging middle class. These people will eat up the iPhone and otherwestern items and not local knockoff as relatively low cost status items, even if they manufactured on home soil. We've seen it many times before.

Also, we don't the profit-sharing criteria. Is it every phone Apple produces for x many years? Will Apple use a loophole to screw over AT&T?

With the version 2 software and 3G imminent most people's complaints are solved. The last remaining issue is the price. How many US citizens are going to use their $600 on bills and not something non-essential? I know several who have expressed get a 3G iPhone with their refund.

PS: I what at WMC in Miami this past week and saw iPhones everywhere. Though, the city is
pretty fashionable. With 30% of the antendees not from the States I wonder if some used the event as an opportunity to get a cheap iPhone.

sent from my iPhone

[SpamSandwich]

Originally Posted by TenoBell

Its been reported at 5 years. But I've never heard it officially confirmed.

Apple established the exclusive deals so that the it could negotiate the plans the iPhone would be sold under. It also gives the Apple a stable partner as it builds the iPhone platform.

The chances of the iPhone going to Sprint are slim to none. Sprint is hemorrhaging its customer base. Sprints 4G plans are WiMax. While everyone else are planning to use LTE.

Don't forget, Intel and Google are also supporting WiMax. Not insignificant partners.

[chwebdesign]

I too am an appl share holder and a life long apple customer. I just recently damaged the screen on my iphone which does not necessarily interfere with the operations of the iphone however I went to my local apple store last week and requested a replacement since I have apple care... The staff member told me that it would cost $250 for the replacement unit which sounded like a fair price however I opted for a new one so I requested to be sold a new unit however the staff member then told me that much how the Burger Kind ad went - they were out of the whopper (iphones) and this was the same thing for all the Miami stores... I then realized how much demand these iphones have...

My guess is that estimate is weak compared to what is really going on in the market - I expect 45m to be beat easily by 2009...

[NOFEER]

the reason rumors are building up is BECAUSE iphone manufacturing plans are building up, as we get closer and closer more and more "will be heard". i don't know about mega millions but how many are holding out for the 3g and sdk software. i believe there is a critical mass developing and will set off this june. i bought aapl at 124 how about another split apple. do you want to collaborate this watch RIM and see what they are doing....since they are delving deeper into the "rumors" to combat this "perfect storm" so what is rim doing hmmmm

[breeze]

Not because you read hype and speculation. Stay steadfast in your course and conviction, which should be understanding and realistic. You will then, be up big time on your investment which will definitely take some time to be huge. Huge it will be without doubt.
Apple is uniquely motivated, innovative and a no hype but all substance company that can do and will. Bill Gates, bet his future on copying Apple and got to where he is for so long, but the free ride is over. (Unfortunately for him he is not the innovator that Steve Jobs is, nor is Microsoft a living model of innovation- it will never be). Apple is going to make sure that no one steals their thunder any more. It's not a question anymore of "if or when". It's happening right before our eyes. This process is not instant and takes time, as does anything-including evolution.

Apple will lead the way and has the respect and trust of it's life long supporters because of it's proven and unshakable record of innovating and making top quality hardware and software.

iPhone will be ubiquitous - just like the iPod. 45 million or not - ubiquitous is - IT.

Don't doubt Apple - it is for real.

[satchmo]

Originally Posted by solipsism

Will Apple use a loophole to screw over AT&T?
[/I]

Perhaps the existing agreement doesn't cover 3G phones.

[wbrasington]

Originally Posted by SpamSandwich

I'll see your 27 million and raise you 60 million!

Pretty funny.

I can't believe people are actually falling for this nonsense as if it could really happen.
45 million sales during the 12 months of 2009?
No matter what, it ain't going to happen.
You're simply not going to get everyone that would buy an iPod to buy an iPhone instead.
Gene has you all roped and doped, forget it and move on.

[ouragan]

As a result, China Mobile appears unwilling to pay the monthly revenue sharing of approximately $15 per month which Munster estimates other exclusive iPhone carriers are currently paying Apple. In time, that may force the company to alter its strategy of signing exclusive revenue sharing agreements with its partners in Asia, which he believes will enable it to sell the iPhone in China by the middle of next year.

In support of this theory, the analyst pointed to recent comments from chief operating officer Tim Cook, who revealed at an investor conference last month that Apple is "not married to any business model" and is instead "married to ... shipping the best phones in the world."

In the event that Apple does forgo its present revenue share model and exclusive carrier relationships, it would likely seek a one-time subsidy from each carrier per iPhone sold.

"We believe the early hype surrounding the launch of the iPhone enabled Apple to garner steep revenue sharing agreements for the 'must have' device from the initial carriers like AT&T, O2, and T-Mobile," Munster said. "However, as the iPhone becomes an established player in the mobile phone market and competitive offerings become available, Apple may not be able to command the exclusive agreements with high revenue sharing plans as it did initially."

There are lots of things that Apple SHOULD do to be competitive in the market. But it is not.

Is it an analyst work to speculate, or should a stock analyst rely on known facts to analyse them?

The problem with euphoric speculation passing off as an analyst's view is that it lends the foundation for repeated "pump and dump" stock operations by Apple insiders, leaving no incentive to actually build up Apple market share by adopting a competitive price policy and new marketing initiatives.

[echosonic]

Originally Posted by breeze

Not because you read hype and speculation. Stay steadfast in your course and conviction, which should be understanding and realistic. You will then, be up big time on your investment which will definitely take some time to be huge. Huge it will be without doubt.
Apple is uniquely motivated, innovative and a no hype but all substance company that can do and will. Bill Gates, bet his future on copying Apple and got to where he is for so long..Unfortunately for him he is not the innovator that Steve Jobs is nor is Microsoft a living model of innovation- it will never be . Apple is going to make sure that no one steals their thunder any more. It's not a question anymore of "if or when". It's happening right before our eyes. This process is not instant and takes time, as does anything-including evolution.

Apple will lead the way and has the respect and trust of it's life long supporters because of it's proven and unshakable record of innovating and making top quality hardware and software.

iPhone will be ubiquitous - just like the iPod. 45 million or not - ubiquitous is - IT.

Don't doubt Apple - it is for real.

Werd.

[vinney57]

Many of you are you failing to grasp the size of the mobile phone market and the likely growth curve of the iPhone. By the end of 2009 there will probably be 4 models with a wider range of prices and form/features, plus a truly enormous software choice and enterprise approval; and the territorial reach will have doubled. 45 million phones IN 2009 is probably quite conservative. I'd say it will be nearer 60.

[vinney57]

Originally Posted by ouragan

The problem with euphoric speculation passing off as an analyst's view is that it lends the foundation for repeated "pump and dump" stock operations by Apple insiders, leaving no incentive to actually build up Apple market share by adopting a competitive price policy and new marketing initiatives.

Yes this sounds very clever but its there is no evidence for it whatsoever.