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iPhone predicted to drive Apple stock to $235

post #1 of 52
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A new report predicts Apple stock will break past the $200 milestone, riding high on the successful and profitable iPhone, even as the company's other businesses are predicted to lose value.

In a note to investors, Charlie Wolf of Needham & Co. said he believes AAPL will trade at $235 in the next 12 months, and will be driven to that price solely on the strength of the iPhone. Specifically, he believes that the "explosive growth" of the App Store will lead to a higher trajectory of iPhone adoption.

Though the iPhone is already the most profitable portion of Apple's business, Wolf believes it will become even more dominant for the company. In his old prediction of a $200 trading price, Wolf viewed the iPhone as $70.18, or 35.1 percent of the stock price's share. Now, he sees the iPhone as $134.07, or 58.3 percent of the total share price. And the fact that the iPhone only controls 12.5 percent of the smartphone market means there is huge potential for growth.

"By exploiting a commanding lead in the all-important smartphone applications market, the iPhone is in a position to chalk up share gains in this fast-growing market that could surprise everyone," Wolf wrote. "In many respects, Apple and Amazon are in similar positions. Amazon holds a relatively small but growing share of the e-commerce market, which itself is small, but growing an order of magnitude faster than the physical retail market."



Part of Wolf's optimism for the App Store stems from changes made by Apple at its recent media event. In the past, Wolf was critical of the difficulty in finding new software for the iPhone. But with iPhone OS 3.1, a "Genius" recommendation system will suggest new software for users, based on what they have already downloaded. Wolf said he sees the change as a first step, but still a positive one.

"Based on these developments since our January valuation analysis, we have upped the number of iPhones that will be sold in 2018, the final year in our model, from 67 million to 107 million," he said. "Our forecast has the phone capturing 20 percent share of the smartphone market in that year, up from 12.5 percent recently. We should note that the iPhone's share of the worldwide market is already around 12.5 percent. So our forecast is by no means an aggressive one."

However, the report also reduced the forecast of future iPod sales as the music player market continues to shrink. From an initial estimated 468 million users, Wolf now believes there will be an install base of 333 million portable music players in 2018. He believes that smartphones will begin to take over that category.

"Until the emergence of converged devices, growth in hte music player market had traced the classic innovation S-curve trajectory," he said. "We continue to estimate that the iPod will maintain a 60 percent share of the worldwide market."

post #2 of 52
Here's hoping ....
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post #3 of 52
I can't see why Macintosh should decrease. Last time I checked, Mac revenue wasn't decreasing. Actually, it's doing great in the current economy.
post #4 of 52
I assume his message is just that iPhone is going to dwarf everything else - even very good Mac growth.


In a year he'll be redefining it with a tablet also going like crazy. http://forums.appleinsider.com/images/smilies/1wink.gif
post #5 of 52
Quote:
we have upped the number of iPhones that will be sold in 2018, the final year in our model, from 67 million to 107 million," he said.


How can anyone predict about 2018??? Damn these analysts!!
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post #6 of 52
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Originally Posted by aToMac View Post

I can't see why Macintosh should decrease. Last time I checked, Mac revenue wasn't decreasing. Actually, it's doing great in the current economy.


On the convergence part, (Anecdotal, I know. ) I just gave my 3rd gen Nano (red) to my sister because the 3GS iPhone now has Nike+ in it for my running. (If you haven't tried the Nike+, it is well worth it)

And I gave my MacBook to my daughter for Medical School. Again, because the 3GS iPhone has replaced about 95% of what I had to do on a laptop!
post #7 of 52
I'd like to believe that $235 figure and I'd be satisfied to see Apple break the $200 mark before the end of the year. Hopefully iPhone sales will surpass 8 million units this quarter even not counting China Unicom sales. The iPod Nano looks like it will be a solid holiday hit. In a way, I'm somewhat glad the Touch didn't have a camera in it this year. It might have stolen the Nano's thunder. Apple should wait until after the new year to introduce a Touch with video recording to continue iPod sales after the holidays.

The one thing that will make me extremely happy is that Apple is able to keep it's share price rising without building a netbook. I hate listening to analysts go on and on about how much Apple is missing out on not building some $300 netbook for the cheapster crowd. I personally think Apple would be committing financial suicide to compete in that sector. As an Apple investor, I'm mainly concerned about about profit margins than I am in market share. Apple can easily thrive with about 20% desktop market share and still make huge amounts of money if they continue making devices that are high in demand in the mobile sector. Apple should continue to focus on people that are willing to spend money on the Apple brand and good customer service. Apple needs to get that rumored tablet into the educational market and make multimedia content delivery the killer feature.

Good luck to fellow investors and let's hope that this $235 target price isn't another pipe dream as it was back in late 2007.
post #8 of 52
Quote:
Originally Posted by Chintan100 View Post

How can anyone predict about 2018??? Damn these analysts!!

Yeah. From what I've heard, we're all going to die on December 21, 2012
post #9 of 52
Quote:
Originally Posted by Constable Odo View Post

The one thing that will make me extremely happy is that Apple is able to keep it's share price rising without building a netbook. I hate listening to analysts go on and on about how much Apple is missing out on not building some $300 netbook for the cheapster crowd. I personally think Apple would be committing financial suicide to compete in that sector. As an Apple investor, I'm mainly concerned about about profit margins than I am in market share. Apple can easily thrive with about 20% desktop market share and still make huge amounts of money if they continue making devices that are high in demand in the mobile sector. Apple should continue to focus on people that are willing to spend money on the Apple brand and good customer service. Apple needs to get that rumored tablet into the educational market and make multimedia content delivery the killer feature.

Excellent points! I agree Apple should not provide a cheap net book and the Tablet sounds to me like an innovative alternative while reshaping a segment of the market as only Apple is able to do.
post #10 of 52
The Mac share of the stock price might fall but the actual dollar number should not. Unless he is actually expecting revenue and profits from the Mac business to fall. I highly doubt that proposition. Does the term 'analyst' refer to where they pull their numbers from?
post #11 of 52
Wolf sees a full moon tonight.
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post #12 of 52
This does follow Jobs's statement years ago that if he were back at Apple he would milk the Mac for all it was worth and then move on to the next big thing.

I don't see anything wrong in what Wolf is saying here.
post #13 of 52
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Originally Posted by Ireland View Post

Wolf sees a full moon tonight.

Maybe 3 wolves, 1 moon?
post #14 of 52
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Originally Posted by nite41 View Post

Yeah. From what I've heard, we're all going to die on December 21, 2012

Not all of us, only those chosen for sacrifice.
post #15 of 52
Quote:
Originally Posted by christopher126 View Post

On the convergence part, (Anecdotal, I know. ) I just gave my 3rd gen Nano (red) to my sister because the 3GS iPhone now has Nike+ in it for my running. (If you haven't tried the Nike+, it is well worth it)

And I gave my MacBook to my daughter for Medical School. Again, because the 3GS iPhone has replaced about 95% of what I had to do on a laptop!

While iPhones may replace Macs for a small percentage of the population...
Macs will replace PCs for a much, much, much larger percentage of the population.
50% of Apple Retail Store Mac sales are to Windows switchers.
That stat has held true for years now and will continue for years to come.
post #16 of 52
Quote:
Originally Posted by melgross View Post

This does follow Jobs's statement years ago that if he were back at Apple he would milk the Mac for all it was worth and then move on to the next big thing.

I don't see anything wrong in what Wolf is saying here.

The iPhone is just an evolution of the Mac platform.
It is the Mac optimized for handheld use.

It will never completely replace the Mac but the tech will cross-pollinate.
For example, the Mac Book Pros have multitouch in their trackpads.
Core Animation was originally developed for the iPhone and later found its way into the Mac OS.
post #17 of 52
Quote:
But with iPhone OS 3.1, a "Genius" recommendation system will suggest new software for users, based on what they have already downloaded. Wolf said he sees the change as a first step, but still a positive one.

is it just me, or is genius a failure? i have yet, for music and now for apps, to recommend or group things as it claims it should. really disappointing. for music, i will stick to last.fm. for apps, i will stick to being lost looking for a needle in a hey stack.
post #18 of 52
Quote:
Originally Posted by aToMac View Post

I can't see why Macintosh should decrease. Last time I checked, Mac revenue wasn't decreasing. Actually, it's doing great in the current economy.

He doesn't break out his forecasts for Mac sales by units or dollars (at least they aren't included here), but I don't think he is predicting that Mac sales will decline overall, only as a percentage of Apple's total revenue, because the iPhone segment is growing so rapidly.
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post #19 of 52
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Originally Posted by Dr Millmoss View Post

He doesn't break out his forecasts for Mac sales by units or dollars (at least they aren't included here), but I don't think he is predicting that Mac sales will decline overall, only as a percentage of Apple's total revenue, because the iPhone segment is growing so rapidly.

I'm not sure how it could be read any other way. The numbers show a 60% decline in value per share for Macs. There are only two possible inferences from that:
1- either he believes there will be a 60% decline in Mac sales
2 - or, he believes that Apple will somehow give the perception that Macs are worth 60% less to stockholders.

I don't believe either, and would add the $29 back on top of the $235 to get a more realistic prediction.

Am very please to see, for once, that a predicted share price has a time frame attached to it.

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post #20 of 52
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Originally Posted by orange whip View Post

I'm not sure how it could be read any other way. The numbers show a 60% decline in value per share for Macs.

I think you are reading this wrongly. What he is saying is that Mac profits will represent a smaller piece of a growing share price, i.e., iPhone revenues are growing much faster that Mac revenues, which is true. I think he might be too negative on Mac sales, but it's really impossible to tell, since no numbers are included. (Possibly this was in the full report, but we're not seeing it here.)

As for the share price prediction timeframe, these are always for 12 months.
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post #21 of 52
Aw shucks - after 70% price appreciation in AAPL shares from March to the present, if Wolf prophesies correctly that means I'll have to settle for just another 30% between now and next September! Ah, well ...

Wolf knows that every new iPhone sold in the U.S. with a two-year AT&T contract pays roughly another $400 phone subsidy immediately into Apple's coffers as deferred subscription revenue, reported as GAAP earnings in quarterly increments over the next 24 months. It's like movie stars who negotiate a share of the gross in blockbuster films - a gift that keeps giving. The deferred revenue effect is enormous and shields AAPL from severe declines in the event a major product line chokes up or a new product introduction bombs. Neither of those scenarios is likely, however.

In other words, downside risk continues to diminish as long as iPhone sales momentum continues and grows. A year ago, the few analysts who forecast share prices reaching $200 were called lunatics. Today, the name-callers have been left in the dust.

Will it always be this way? Obviously not, unless Apple unveils another conceptual game-changer like the iPod, iTunes or iPhone. Further share gains following a history of aggressive price appreciation are always harder to attain. At some point AAPL will plateau. Having bought in at the century mark nearly 12 months ago - I'm happy, holding and watching. Probably will sell and claim long-term capital gains somewhere within the next year.

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post #22 of 52
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Originally Posted by Kibitzer View Post

A year ago, the few analysts who forecast share prices reaching $200 were called lunatics.

I don't know that you can say this, since AAPL was at the $200 level at the end of 2007 and was forecasted to go higher. The low at the beginning of this year represented a staggering 60% drop from that high point. The reality is that it's probably going to take two full years if not longer for AAPL to return to former price levels.
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post #23 of 52
At $248 a share, Apple would have a higher market value than Microsoft (at today's price).
post #24 of 52
Quote:
Originally Posted by Dr Millmoss View Post

I don't know that you can say this, since AAPL was at the $200 level at the end of 2007 and was forecasted to go higher. The low at the beginning of this year represented a staggering 60% drop from that high point. The reality is that it's probably going to take two full years if not longer for AAPL to return to former price levels.

Surely it is closing fast on that high level now?
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post #25 of 52
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Originally Posted by digitalclips View Post

Surely it is closing fast on that high level now?

And this changes my point how, exactly? AAPL still needs to move up another 15% to be where it was nearly two years ago. That's quite a long way, and hardly assured. I'm not counting on it. October is a classic month for the markets to become jittery.
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post #26 of 52
Quote:
Originally Posted by Dr Millmoss View Post

And this changes my point how, exactly? AAPL still needs to move up another 15% to be where it was nearly two years ago. That's quite a long way, and hardly assured. I'm not counting on it. October is a classic month for the markets to become jittery.

I guess I am being hopeful in my comment inferring 'closing fast now' would be far sooner than the two years you suggest. My best guess is within the next 12 months we will see a new high.
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post #27 of 52
Absurd. It is RIDICULOUS to have projections going that far forward on a tech company. Considering how dramatically products change and evolve, to try to pretend that you have even the slightest *clue* what the tech market is going to look like in 2018 is just absurd. I wonder if a few years ago he had similar projections about the iPod going into 2015 that completely lacked any accounting for the rise of the smartphone/convergence device. Someone should find that, because it would be good for a laugh.

Here's what we know about the tech market in 2018: NOTHING.
post #28 of 52
It was a few short months ago (in Feb 09) that Kathryn Huberty of Morgan Stanley advised her clients to sell AAPL @ 80. Gene Munster stuck by his target price of $225 and everyone called him crazy. Who's crazy now?
post #29 of 52
Quote:
Originally Posted by digitalclips View Post

I guess I am being hopeful in my comment inferring 'closing fast now' would be far sooner than the two years you suggest. My best guess is within the next 12 months we will see a new high.

In three months it will be two years since AAPL made its all-time high of $200. This occurred in December 2007. If it's not going to be a two year span, then AAPL needs to move up another 15% in three months from now. That's a big move, on top of the doubling we've seen since the low in January. That would be nice, but as I said, I'm not counting on it.
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post #30 of 52
What is wrong this analyst thinking is the same as always: Linear thinking particularly with technology.

Tech is full of disruptive innovations. The iPhone itself is a disruptive innovation in mobile computing. It has been gaining market share with consumers and software developers. The barrier holding the product from reaching the dominant position is the one carrier per market model, but that is changing. Once that happens the iPhone could get 50+% of the market. The smartphone market itself is not static, but expanding rapidly. Let us not forget that Nokia with a so so smart phone attained a 50% market share.

Once the economy picks up, the Mac growth could reach 15% from a small base... then there is the disruptive potential of the Tablet PC in education, professional apps like medicine and even general use. The iPod itself is morphing into the iPhone. However, over time, Apple could add GPS, and a camera and turn the product into a category killer.

Add it all up and the stock price could reach closer to $300... within 18 months after the iPhone is available across multiple carriers. All bets are off if we go into a Great Depression II.
post #31 of 52
Quote:
Originally Posted by MJ Web View Post

It was a few short months ago (in Feb 09) that Kathryn Huberty of Morgan Stanley advised her clients to sell AAPL @ 80. Gene Munster stuck by his target price of $225 and everyone called him crazy. Who's crazy now?

Over the years, going back to 2002, when I first began following him, I've found his stock predictions to be the most accurate, excluding unexpected recessions and the like.
post #32 of 52
Quote:
Originally Posted by AjitMD View Post

What is wrong this analyst thinking is the same as always: Linear thinking particularly with technology.

Tech is full of disruptive innovations. The iPhone itself is a disruptive innovation in mobile computing. It has been gaining market share with consumers and software developers. The barrier holding the product from reaching the dominant position is the one carrier per market model, but that is changing. Once that happens the iPhone could get 50+% of the market. The smartphone market itself is not static, but expanding rapidly. Let us not forget that Nokia with a so so smart phone attained a 50% market share.

Once the economy picks up, the Mac growth could reach 15% from a small base... then there is the disruptive potential of the Tablet PC in education, professional apps like medicine and even general use. The iPod itself is morphing into the iPhone. However, over time, Apple could add GPS, and a camera and turn the product into a category killer.

Add it all up and the stock price could reach closer to $300... within 18 months after the iPhone is available across multiple carriers. All bets are off if we go into a Great Depression II.

You can only predict from what you know. No one can predict a new unexpected disruptive invention. So you can't account for it.

But that doesn't happen very often. most advances are pretty predictable for years. It's like predicting the path of a hurricane. You can predict a track from what you know, but the further in the future, the greater is the possible variation from that track. As you move forward, the variability narrows for any given moment in time. So what you are doing is making continuous corrections based on the latest information.

That doesn't mean that you should just give up and say that we don't know what will happen a week from now.

The same thing is true here. Based on what is known, predictions are made, as time goes on, those predictions are refined.

If something totally new comes about, possible but not as often as you may think, then everything is recalculated based upon that new information, and life goes on as before.

We do the same things in our own lives. How would someone buy a car for a four year payment schedule if they didn't predict they would have the means to pay for it then?

How about getting a (proper) mortgage? You're predicting 15 to 30 year track in your future.
post #33 of 52
Quote:
Originally Posted by melgross View Post

You can only predict from what you know. No one can predict a new unexpected disruptive invention. So you can't account for it.

Oh no, I've been predicting chaos all my life, and I've nearly always been right.

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post #34 of 52
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Originally Posted by Dr Millmoss View Post

Oh no, I've been predicting chaos all my life, and I've nearly always been right.


I'm sorry to hear that.
post #35 of 52
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Originally Posted by technohermit View Post

Maybe 3 wolves, 1 moon?

Heh. I get that reference... Clearly, I'm spending too much time on the web.

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post #36 of 52
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Originally Posted by Kibitzer View Post

Aw shucks - after 70% price appreciation in AAPL shares from March to the present, if Wolf prophesies correctly that means I'll have to settle for just another 30% between now and next September! Ah, well ...

I'm tellin' ya... if I had a spare 100 or 200 thousand, I'd put it all on AAPL, despite the growth curve.

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post #37 of 52
Quote:
Originally Posted by melgross View Post

Over the years, going back to 2002, when I first began following him, I've found his stock predictions to be the most accurate, excluding unexpected recessions and the like.

Munster's typically more grounded in his analyses than most, but he's made some boneheaded statements also. He's alright.

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post #38 of 52
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Originally Posted by SpamSandwich View Post

I'm tellin' ya... if I had a spare 100 or 200 thousand, I'd put it all on AAPL, despite the growth curve.

I wish I had more cash when the stock was $80 than I did, or I would have bought even more than I did buy then. I just keep buying it. It's crazy.
post #39 of 52
Quote:
Originally Posted by SpamSandwich View Post

Munster's typically more grounded in his analyses than most, but he's made some boneheaded statement before also.

Who hasn't?

It's not important if some mistakes are made, its the overall long term situation, and he's been pretty good.
post #40 of 52
Quote:
Originally Posted by melgross View Post

I wish I had more cash when the stock was $80 than I did, or I would have bought even more than I did buy then. I just keep buying it. It's crazy.

Luckily, the largest AAPL purchase I've ever made (during this downturn) was at $85. Same here though... a good buy can never be big enough, and a bad buy can never be small enough.

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