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Piper Jaffray details 10 Apple strengths for share price run up to $1000 - report

post #1 of 24
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Investment bank Piper Jaffray issued a note on Friday highlighting 10 key points, which range from anticipated future products to China iPhone growth, that it believes will drive shares of Apple up to $1,000 in the next couple of years.

In the note obtained by AppleInsider, analyst Gene Munster offered a bird's-eye view of the company and its prospects.

He believes the most important highlights for Apple will be continued innovation in the company's 2012 product roadmap; a blowout next-generation iPhone launch; an Apple television arriving in 2013; little change to carrier subsidies for the next two to three years; sustained gross margins above 40 percent and the China opportunity.

2012 product roadmap

Munster said he expects Apple to release "meaningful updates" to its core product lines, especially the iPhone and Mac, that will demonstrate the company's continued "ability to innovate." Mac updates should arrive within the next six weeks with enhanced Retina Displays and Intel's Ivy Bridge chips, he added. Given that it would be the "first meaningful Mac update in over a year," Munster expects the refresh to "reaccelerate" Mac sales.

Looking ahead, Munster sees a smaller iPad with a screen of 7-8 inches and the Apple television arriving next year.

Apple's next iPhone

With regard to Apple's next-generation iPhone, Munster's position remains largely unchanged from an earlier note expressing confidence in the upcoming handset. He think Apple will manage to overcome a shortage of Qualcomm's 28nm baseband chips by procuring "a lion's share" of them ahead of production. He estimates there is an 80 percent chance that Apple will hit Piper Jaffray's 49 million iPhone forecast for the December quarter.

The next iPhone will have a "completely redesigned body style," possibly with a metallic rear panel similar to that of the current iPad. He puts the probability of a 4-inch screen at 60 percent. The next-gen handset will also likely include 4G LTE, an upgraded processor and memory and a higher-megapixel camera.

Apple television

For several years now, Munster has been one of the most vocal proponents of the theory that Apple is working on a connected television. He speculated on Friday that Apple could announce the product as early as December 2012 in order to "freeze the market" of prospective TV buyers during the holiday season.

The analyst believes an Apple television would arrive in the range of $1,500 to $2,000 and would come in larger screen sizes (42-55 inches). By way of comparison, Munster pointed out that a typical 42-inch connected TV costs around $700, while a 55-inch goes for $1,400. He cited Bang & Olufsen's upcoming $3,700 40-inch V1 TV as an example of the market's high end.

The Apple television would reportedly include interface control via an iPhone and iPad app, as well as voice-control through Siri. Munster also suggested that the new TV would have access to an App Store that would "enable consumers to play games, listen to music, etc." on the TV set.

The firm believes Apple could achieve 10 percent of the market within 1-3 years of the device's launch. Analyst Michael Olson estimates the connected TV market will reach 110 million units next year. Munster estimates that every one million units of Apple TVs sold would bring in an additional 1 percent in revenue throughout calendar 2013.

Phone subsidies

Though some financial analysts have cautioned that carriers may be cutting back on phone subsidies, the investment bank expressed belief that iPhone subsidies would remain relatively unchanged for the next 2-3 years. It noted the fact that the iPhone reportedly has the lowest churn rates of any mobile device and pointed to in-house research showing that consumers interest in the iPhone should enable carriers to achieve lower customer acquisition costs.

Comparing Android subsidies to those of the iPhone, Munster said the market share on AT&T and Verizon was tilted heavily toward Apple. Additionally, even if market leaders among the wireless industry were to drop subsidies, second- or third-place carriers would remain willing to subsidize the iPhone, Munster said. Though such a situation could cause near-term "hiccups" in regional markets, the analyst believes consumers would vote with their wallets for the iPhone.

40%+ Gross margins

Munster suggested that Apple will be able to maintain gross margins above 40 percent over the next three years largely because the iPhone will make up a larger part of the company's total sales. He believes the iPhone has a 60 percent gross margin, significantly higher than the estimated 40 percent margin of the iPad and the presumed 25 percent margin for Macs.

Assuming just 10-15 percent of Apple's component costs are labor related, Munster does not expect increased wages at manufacturing partner Foxconn to have a "noticeably negative impact" on the iPhone maker's margins.

"Heart transplant" strategy

Munster described Apple's strategy of phasing out older products from its lineup as a "heart transplant" strategy.

"We believe this strategy is a key factor in the company benefiting from scale of producing a streamlined product line, which in part could enable the company to secure the best component prices possible which translate to higher margins," he said.

Looking ahead, Munster believes that Apple will continue to offer two older iPhone models and one older iPad alongside its current-generation products.

China adoption curve

Munster cautioned investors not to believe that China's adoption curve will follow the same arc as that of the U.S. According to his estimates, Apple sold 8-9 million iPhones in China during the March quarter, compared to 9.5 million Stateside activations and 1 million in the channel.

"While the US saw a 34 percent quarter-over-quarter slowdown in iPhone activations following the launch quarter, we do not believe China will follow the same path," he said.

The analyst said "most investors" believe the slowdown in the U.S., coupled with an expected dropoff ahead of the next iPhone, poses a risk to consensus estimates of 29 million iPhones during the June quarter. However, Munster remains comfortable with his 29 million unit estimate because he views iPhone sales in China as remaining robust over the period.

Piper Jaffray expects continued "healthy smartphone growth" from China because of its growing middle class and the current under-penetration of smartphones in the country, the analyst noted.

Tablets eclipsing PCs

Another key area of strength for Apple is the long-term tablet opportunity, Munster continued. Agreeing with Apple CEO Tim Cook on the matter, the analyst expects the tablet market to eventually outgrow the PC market.

For now, Munster expects Apple to sell 66 million iPads this year, roughly two-thirds of the projected total tablet market. Meanwhile, the PC market is expected to hit 371 million units this year, according to market research firm IDC. In 2015, Munster believes Apple will sell 176 million iPads out of a total of 301 million.

"Through 2015, we believe Apple will maintain its market share lead in tablets and have heard tablet competition likened to iPod competition in the early days of the iPod (XYZ is coming, which will kill the iPod)," Munster said.

IDC projects PC sales to reach 484 million in 2015. As such, Munster believes tablets could potentially surpass PCs by 2020.

Enterprise strategy

Munster also said Apple's "long road" enterprise strategy will be another key point for its growth. He believes the company considers the consumer and enterprise markets as "significantly different verticals" and counts on consumer adoption to lead to enterprise adoption.

The analyst expects the high "consumer desire" for the iPhone and the iPad to transfer over to the corporate level. He did say, however, that he doesn't expect the Mac to enjoy the same amount of success in the enterprise as Apple's mobile products. The Mac maker's reluctance to support older OS versions is an obstacle to corporate adoption, since most companies prefer to use older versions of Windows "for reliability purposes."

Services

Finally, Munster expressed belief that services such as iTunes, the App Store and iCloud will help "enhance" the Apple ecosystem without needing to produce substantial profits on their own. Apple could potentially take a similar approach to a "larger content initiative" for its rumored Apple television, he added.

"We note that with 225+ million registered iTunes accounts and 125+ million iCloud accounts, Apple has one of the largest registered user based in the tech world," Munster wrote.

Piper Jaffray reiterated on Friday its Overweight rating for Apple and its $910 12-month price target.
post #2 of 24
The Apple TV still seems to be the biggest question mark with very little real information about it from Apple.
post #3 of 24
Quote:
Originally Posted by ifij775 View Post

The Apple TV still seems to be the biggest question mark with very little real information about it from Apple.

That, and the 7'' iPad... how seriously does one take a prediction which lumps sensible arguments together with highly speculative rumors?

post #4 of 24

New iPhone selling 49 million units in the holiday quarter... sure... even more if they can make them fast enough.

 

iPad selling 66 million units in 2012... hmmmm... I don't believe it. In 2 years with iPad version 5 when functionality and style really hit the road together then they'll sell 66 million units in a year... probably more.

 

Show me 60 million iPhones, 25 million iPads and 8 million Macs in a quarter and then I'll think about $850-$900.

 

It'll take another iWonder to get it to $1000. Apple television?... hmmmmmm...

 

Possible?... sure... Probable?... lip and the cup etc.
 

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post #5 of 24
Quote:
Originally Posted by DrDoppio View Post

That, and the 7'' iPad... how seriously does one take a prediction which lumps sensible arguments together with highly speculative rumors?

Yea, that seems pretty speculative, too.
post #6 of 24
Quote:
Originally Posted by ifij775 View Post

The Apple TV still seems to be the biggest question mark with very little real information about it from Apple.

10% of a saturated TV market in 1-3 yrs might be a lil ambitious.
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post #7 of 24
Quote:
Originally Posted by island hermit View Post

New iPhone selling 49 million units in the holiday quarter... sure... even more if they can make them fast enough.

 

iPad selling 66 million units in 2012... hmmmm... I don't believe it. In 2 years with iPad version 5 when functionality and style really hit the road together then they'll sell 66 million units in a year... probably more.

 

Show me 60 million iPhones, 25 million iPads and 8 million Macs in a quarter and then I'll think about $850-$900.

 

It'll take another iWonder to get it to $1000. Apple television?... hmmmmmm...

 

Possible?... sure... Probable?... lip and the cup etc.
 

 

Your unit projects you threw out would generate $80 in profit a share.  At P/E of 13, its a share price of $1,040.   At P/E of 15, it's $1,200 

 

You only off by 30-40%.  I guess in your world that is considered a success  

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post #8 of 24
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Originally Posted by Red Oak View Post

 

Your unit projects you threw out would generate $80 in profit a share.  At P/E of 13, its a share price of $1,040.   At P/E of 15, it's $1,200 

 

You only off by 30-40%.  I guess in your world that is considered a success  

 

I think you forgot that 15% of those iPhones would be older models with reduced revenues and, really??!!, they are going to sell China Mobile iPhones at the same price that we pay for them? Ha!; Macs, it appears are coming down in price as well if we are to believe recent stories about pricing of Apple notebook computers; and, following the story, a 7" iPad would also reduce the revenues... four reasons for bringing the share price down to around $900.

 

Apple with a p/e of 15??!! pffffttt!

 

... but don't sweat the details.


Edited by island hermit - 5/25/12 at 7:43am
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post #9 of 24
Quote:
Originally Posted by island hermit View Post

New iPhone selling 49 million units in the holiday quarter... sure... even more if they can make them fast enough.

 

iPad selling 66 million units in 2012... hmmmm... I don't believe it. In 2 years with iPad version 5 when functionality and style really hit the road together then they'll sell 66 million units in a year... probably more.

 

Show me 60 million iPhones, 25 million iPads and 8 million Macs in a quarter and then I'll think about $850-$900.

 

It'll take another iWonder to get it to $1000. Apple television?... hmmmmmm...

 

Possible?... sure... Probable?... lip and the cup etc.
 

 

I can see 60 million iPhones and 25 million iPads in the coming holiday quarter selling just the gen-6 iPhone and the current iPad. I doubt they'll ever sell 8 million Macs per quarter though.

post #10 of 24
Quote:
Originally Posted by poke View Post

 

I can see 60 million iPhones and 25 million iPads in the coming holiday quarter selling just the gen-6 iPhone and the current iPad. I doubt they'll ever sell 8 million Macs per quarter though.

 

 

I can see 60 million iPhones in the holiday quarter as well... but I doubt if they could make that many.

 

25 million iPads? Hmmmm... I see maybe 18 million tops... more like 16 million.

 

... and, personally, I think that a 7" iPad is a mistake... unless they call it something different than iPad to avoid any conflict or cannabalization at all... jmho.

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post #11 of 24
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Originally Posted by AppleInsider View Post
The Mac maker's reluctance to support older OS versions is an obstacle to corporate adoption, since most companies prefer to use older versions of Windows "for reliability purposes."

 

Bad news for Microsoft.

Good luck with Windows 8, there, Ballmer.

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post #12 of 24
For AAPL to be worth $1k in my book, they would need $350 in cash, $70 EPS, and a dividend in the 3% range. Without an accelerating net margin I don't know how they can do it. At this point though, I'm just looking for 12-15% annual appreciation in share price leveraged to give me a 25-30% return on investment.
post #13 of 24

Having followed AAPL for years I find Gene Munster and PJ the most credible analysts. But I don't get Apple TV? I already have an ATV gathering dust that uses an iPad/iPhone Remote app. Even if I didn't have to go off the grid -- Source | HDMI 2 - to receive iTunes/Netflix offerings, it isn't enough to lure me back. What's going to be so different? If Apple doesn't introduce something "really revolutionary" it's going have a bomb on its hands and egg on its face!

 

Some sort of AI that customizes and personalizes your TV lineup along with a "pay for view" model that's more affordable is what it would take to induce me. If Apple can help cut out the cable provider by enabling me to buy just what I want to see and helps me execute an better way of envisioning a TV lineup, I'm in... But that's a tall order. 

post #14 of 24
Quote:
Originally Posted by AppleInsider View Post

..."We note that with 225+ million registered iTunes accounts and 125+ million iCloud accounts, Apple has one of the largest registered user based in the tech world," Munster wrote.
...

 

...the largest user based in the tech world:

 

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post #15 of 24
Quote:
Originally Posted by DrDoppio View Post

...the largest user based in the tech world:

Really-fat-guy-on-computer1.jpg

Poor chap.
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post #16 of 24
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Originally Posted by Ireland View Post


Poor chap.

 

At least he's smiling. Probably got into AAPL at $80.

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post #17 of 24
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Originally Posted by ifij775 View Post

The Apple TV still seems to be the biggest question mark with very little real information about it from Apple.

 

That's typical Apple. That said, IF Apple is going to do it they won't pre announce it in the way that Munster implies. He makes it sound like they will announce it say Mid November this year to stop families from buying a new tv for Christmas etc. But then release it in Spring 2013. But that's way not Apple and he should know it. They will announce it at most 2 months before it comes out and they will have it out to buy for the holidays. It's their business season and they would be morons not to hit it. IF the tv exists. Otherwise they will hold and announce it when it's ready. They know those that might buy will have heard the rumors and won't buy someone else anyway. 

post #18 of 24
Quote:
Originally Posted by DrDoppio View Post

That, and the 7'' iPad... how seriously does one take a prediction which lumps sensible arguments together with highly speculative rumors?

 

How seriously does one take words from a stock analyst. 

post #19 of 24
Quote:
Originally Posted by island hermit View Post

iPad selling 66 million units in 2012... hmmmm... I don't believe it.

 

Actually they might. You are talking about a good 8 months of sales, and they went international real fast on this one compared to the other two. They still haven't released in China and that one country is crazy for Apple things. Like WTF crazy for it. Everyone of those 9 million iPhone buyers would probably buy an iPad also if and when it gets released there. 

 

Plus keep in mind the growing business movement. British government buying 20 thousand units for this or that. Next up might be the US Congress getting one for every Rep, Senator and their assistants. Airlines buying them for their crews and even passenger rental and so on. 

 

AND then there's that Apple led drive for the schools. That can be hundreds of thousands of units per city right there. There's probably 66 million grade school kids in the major cities just in the US. Not every school will jump in of course but I bet a good 1/10th of that are in private or charter schools that would and will. And it might be for this coming school year. 

post #20 of 24
Quote:
Originally Posted by charlituna View Post

 

Actually they might. You are talking about a good 8 months of sales, and they went international real fast on this one compared to the other two. They still haven't released in China and that one country is crazy for Apple things. Like WTF crazy for it. Everyone of those 9 million iPhone buyers would probably buy an iPad also if and when it gets released there. 

 

Plus keep in mind the growing business movement. British government buying 20 thousand units for this or that. Next up might be the US Congress getting one for every Rep, Senator and their assistants. Airlines buying them for their crews and even passenger rental and so on. 

 

AND then there's that Apple led drive for the schools. That can be hundreds of thousands of units per city right there. There's probably 66 million grade school kids in the major cities just in the US. Not every school will jump in of course but I bet a good 1/10th of that are in private or charter schools that would and will. And it might be for this coming school year. 

 

Oh sure... anything is possible but I'm betting that Apple won't sell over 15 million per in the next 2 quarters and that would mean at least a 22 million iPad holiday quarter. Around July 22 it should be interesting... that earnings report will tell me almost everything I need to know.

 

2013, though, I'm predicting 72 million.

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post #21 of 24
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Originally Posted by island hermit View Post

 

At least he's smiling. Probably got into AAPL at $80.

Who cares even if he got in at 40, he’s probably 5 chikens away from being dead (if not already).

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post #22 of 24
Quote:
Originally Posted by Povilas View Post

Who cares even if he got in at 40, he’s probably 5 chikens away from being dead (if not already).


may be you are right........

post #23 of 24
Quote:
Originally Posted by Povilas View Post

Who cares even if he got in at 40, he’s probably 5 chikens away from being dead (if not already).

 

Naw, he cashed in at $636 and went to a fat farm where he worked himself down to 190 and he's now hanging on a beach in Nicaragau.

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post #24 of 24
Quote:
Originally Posted by MJ Web View Post

Having followed AAPL for years I find Gene Munster and PJ the most credible analysts. But I don't get Apple TV? I already have an ATV gathering dust that uses an iPad/iPhone Remote app. Even if I didn't have to go off the grid -- Source | HDMI 2 - to receive iTunes/Netflix offerings, it isn't enough to lure me back. What's going to be so different? If Apple doesn't introduce something "really revolutionary" it's going have a bomb on its hands and egg on its face!

 

Some sort of AI that customizes and personalizes your TV lineup along with a "pay for view" model that's more affordable is what it would take to induce me. If Apple can help cut out the cable provider by enabling me to buy just what I want to see and helps me execute an better way of envisioning a TV lineup, I'm in... But that's a tall order. 

Movies for the adults and games for the kids. That alone puts them in the living room next to or instead of the next console.

 

Possibly first gen, more likely 2nd, what if those retina screens use all their pixels to display 3d?

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