Apple upgraded by Morgan Stanley on expected iPhone boom

Posted:
in iPhone edited January 2014
Arguing that the market is underestimating demand for iPhones over the next two calendar years, investment bank Morgan Stanley on Tuesday upgraded shares of Apple to Overweight from Equal-weight, saying success of the touchscreen handset should offset any growth risks in the company's core Mac and iPod businesses.



"We believe Apple is emerging as the clear leader in the battle over the mobile Internet," wrote analyst Katy Huberty, who also boosted her 12-month price target on the company's shares to $180 from $105. "We size this as an incremental 4 billion installed base opportunity for Apple, 4x the installed base of PCs and 10x the installed base of MP3 players."



Although Huberty believes Apple will only manage to garner a 2% share of all mobile devices -- or 15% of the smartphone market -- by year's end, she notes that the iPhone has already captured a commanding 38% share of mobile internet operating system usage.



"[D]ata usage on the iPhone is 6-10x, and application downloads are 100x other mobile devices -- suggesting to us that Apple?s market share will continue to expand as mobile Internet adoption continues to rise," she told clients. "Even looking at Apple?s own history, the iPhone has already proven to be a more meaningful growth opportunity."



Huberty cited an internal study in predicting that two key inflection points will help drive iPhone unit growth and subsequently per-share earnings for Apple during the third calendar quarter of the year, which runs July through September.



First, she believes Apple will cut the price of the existing iPhone 3G to $99-$149 from $199 when it introduces new models next month, spurring a 50%-100% incremental increase in unit demand. She also pointed to her study in predicting that more than 15% of existing iPhone owners will likely to upgrade to new models when they're announced.



"Putting all the pieces together, our base case assumes 9.9 million unit shipments in [the third quarter] and 24.8 million for the full year ?09 vs. consensus of approximately 18-20 million units," Huberty wrote. "For [2010], our base case assumes 36.2 million units which we believe is materially higher than market expectations."







Assuming her model proves accurate, the analyst believes sales of the handsets will contribute roughly 50% of Apple's per-share earnings in calendar year 2010, up from 30 percent last year, helping the company grab 3% of the worldwide handset market and 17% of the smartphone market, up from 1% and 10% respectively in 2008.







"The core of our stock call is that the iPhone?s success and higher margins will begin to mute the fundamental margin and growth risks in Apple?s core Mac/iPod businesses," she told clients. For calendar year 2010, Huberty now estimates Apple's GAAP per-share earnings to come in at $7.50, up from $5.52, while non-GAAP earnings surge to $9.00 from $5.52.







"We think Apple shares are fundamentally undervalued relative to our revised earnings and free cash flow expectations in 2009/2010," she wrote. "With an attractive valuation, $29 billion of cash, no debt and product cycle [per-share earnings] growth over the next three years, we would be buyers of Apple today and incrementally on any near term weakness."



Shares of Apple are up $4.76, or nearly 4%, to $127.26 in morning trading on the Nasdaq stock market.
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Comments

  • Reply 1 of 72
    walshbjwalshbj Posts: 864member
    Strange that someone (Huberty) with a reputation in certain circles for being completely clueless has so much power to move the share price. Says a lot about analysts.
  • Reply 2 of 72
    mactrippermactripper Posts: 1,328member
    What I think Apple should do:



    1: Create three iPhone lines to corner the market much like they did with the iPod. With tiered plans to support other people's incomes allowances. Larger tablet iPhone, regular and iPhoneMini.



    2: Allow iPhone apps to run on OS X and/or extend the huge development base over to OS X.



    (you want large and better iPhone apps, buy a Mac)



    3: Extend carriers to other companies, even just a little. Just to satisfy people who had a falling out with ATT.



    4: Be able to unscrew the cover off the back of iPhones and be able to change the battery.



    5: Put a frigging laser bean on it's head. (a low powered eye friendly laser pointer, ir too)
  • Reply 3 of 72
    teckstudteckstud Posts: 6,476member
    To early -still in vacation mode.
  • Reply 4 of 72
    gtl215gtl215 Posts: 242member
    Quote:
    Originally Posted by teckstud View Post


    How can you count OS usage on iPhones when no other browser is allowed on them? Disqualified!



    Fail.



    http://www.reghardware.co.uk/2009/01...hone_browsers/
  • Reply 5 of 72
    missiongreymissiongrey Posts: 204member
    Quote:
    Originally Posted by teckstud View Post


    How can you count OS usage on iPhones when no other browser is allowed on them? Disqualified!





    Actually there are a few others browsers from the app store:



    Edge Browser

    Incognito

    WebMate

    Shaking Web
  • Reply 6 of 72
    wizard69wizard69 Posts: 12,719member
    There will be a large number of people upgrading their iPhone's if the new ones are as good as rumored to be. If AT&T offers up the right upgrade plan to break existing contracts I might be first in line. I could see numbers as high as 50% upgrades within a year of the improved iPhone's hitting the showroom floor. The big draw for me would be the faster processing and hopefully background apps.





    Maybe I should get a job as an analyst







    Dave
  • Reply 7 of 72
    teckstudteckstud Posts: 6,476member
    Quote:
    Originally Posted by MissionGrey View Post


    Actually there are a few others browsers from the app store:



    Edge Browser

    Incognito

    WebMate

    Shaking Web



    Those piddly browsers are like a real threat?

    Where's IE?

    Firefox?
  • Reply 8 of 72
    xwiredtvaxwiredtva Posts: 389member
    Supposed to be another "game changer" for smart phones. Offering "free" upgrades to iPhone V1 users was tossed around too. Gonna recycle 1g iphones for emerging markets.
  • Reply 9 of 72
    xwiredtvaxwiredtva Posts: 389member
    Quote:
    Originally Posted by wizard69 View Post


    There will be a large number of people upgrading their iPhone's if the new ones are as good as rumored to be. If AT&T offers up the right upgrade plan to break existing contracts I might be first in line. I could see numbers as high as 50% upgrades within a year of the improved iPhone's hitting the showroom floor. The big draw for me would be the faster processing and hopefully background apps.





    Maybe I should get a job as an analyst







    Dave



    It's not hard.
  • Reply 10 of 72
    Quote:
    Originally Posted by teckstud View Post


    Those piddly browsers are like a real threat?

    Where's IE?

    Firefox?



    Those would be up to Microsoft and Mozilla to create.
  • Reply 11 of 72
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by MacTripper View Post


    What I think Apple should do:



    1: Create three iPhone lines to corner the market much like they did with the iPod. With tiered plans to support other people's incomes allowances. Larger tablet iPhone, regular and iPhoneMini.



    2: Allow iPhone apps to run on OS X and/or extend the huge development base over to OS X.



    (you want large and better iPhone apps, buy a Mac)



    3: Extend carriers to other companies, even just a little. Just to satisfy people who had a falling out with ATT.



    4: Be able to unscrew the cover off the back of iPhones and be able to change the battery.



    5: Put a frigging laser bean on it's head. (a low powered eye friendly laser pointer, ir too)



    1) I?m sure they will diversify the HW, like they did with the iPod, but probably not all at once. It usually isn?t good business for scaling your product all at once. That said, there is evidence that we?ll see two devices next month. A lower-end device, more inline with today?s iPhone, with a cheaper carrier plan and a higher-end device.



    2) That may be nice for certain apps, but it may also clash with Apple?s focus. I like the idea, but I can see potential issues with it.



    3) Why always the mention of ONLY expanding carriers in the US why we know that doing so would require a different phone to be made, tested and stocked? Never any consideration to all those complete 3GPP countries.



    4) With the iPhone 3G you can remove the 2 screws at the bottom and remove the non-soldered battery. This is an improvement over the original iPhone and it?s probably all we?ll get in this regard.



    5) This is the most likely of the list.





    Quote:
    Originally Posted by xwiredtva View Post


    Supposed to be another "game changer" for smart phones. Offering "free" upgrades to iPhone V1 users was tossed around too. Gonna recycle 1g iphones for emerging markets.



    I?m not following. Who tossed it around? It was stated at the iPhone 3.0 special event in March. All iPhones will be getting 3.0 for free and all iPod Touches will be charged a nominal fee, likely $10.



    If I had to guess, I?d say that the reason for this free update was not so users can sip their old iPhones to emerging markets, many of which use CDMA, but to keep the other mobile vendors off balance. My reasoning that to compete better with the iPhone they?ll also have to offer long-term rich updates, but this is considerably more difficult for others who have much more diverse HW to code and test for.
  • Reply 12 of 72
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by MissionGrey View Post


    Those would be up to Microsoft and Mozilla to create.



    I don’t think Apple is allowing other browser engines at this time, though any app can call the built-in WebKit browser engine as many apps already do.
  • Reply 13 of 72
    melgrossmelgross Posts: 31,463member
    Quote:
    Originally Posted by teckstud View Post


    Those piddly browsers are like a real threat?

    Where's IE?

    Firefox?



    Who cares?
  • Reply 14 of 72
    Quote:
    Originally Posted by solipsism View Post


    I don?t think Apple is allowing other browser engines at this time, though any app can call the built-in WebKit browser engine as many apps already do.





    I don't know. I use Safari and have no problem with it.
  • Reply 15 of 72
    Quote:
    Originally Posted by melgross View Post


    Who cares?





    That was my first thought too. haha
  • Reply 16 of 72
    melgrossmelgross Posts: 31,463member
    Quote:
    Originally Posted by solipsism View Post


    1)

    If I had to guess, I?d say that the reason for this free update was not so users can sip their old iPhones to emerging markets, many of which use CDMA, but to keep the other mobile vendors off balance. My reasoning that to compete better with the iPhone they?ll also have to offer long-term rich updates, but this is considerably more difficult for others who have much more diverse HW to code and test for.



    The obvious advantage is to keep the old phnes in the market. That way they add to the number of phones out, rather than being unable to use the latest software, and likely, much of the latest hardware that we'll see coming out in the near future.



    That gives Apple a much bigger base than other manufacturers who fragment their lines with different versions of the OS and hardware.



    If Apple sells 25 million phones in the next 12 months, that will be added to the majority of the 21 million plus that have been sold so far, giving them over 46 million phones out there, rather than just the latest 26 million.



    That means almost twice as many phones buying apps, and music, and almost twice the number browsing the internet, and using other data services.
  • Reply 17 of 72
    Considering 38% of web traffic is from the iPhone, and they are only on one carrier and make up 15% (I think) of the total smart phones, people must like the web browsers.
  • Reply 18 of 72
    gtl215gtl215 Posts: 242member
    Quote:
    Originally Posted by MissionGrey View Post


    That was my first thought too. haha



    Only techstud cares. I'm sure there will be IE and Firefox "apps" for the Pre, right? Ha, please.
  • Reply 19 of 72
    gtl215gtl215 Posts: 242member
    Quote:
    Originally Posted by melgross View Post


    The obvious advantage is to keep the old phnes in the market.



    i've been too lazy to sell my original iPhone yet. Anybody want it? lol
  • Reply 20 of 72
    sflocalsflocal Posts: 4,492member
    Quote:
    Originally Posted by melgross View Post


    Who cares?



    In the world according to Teckstud (population=1), it's all that matters regardless of what the entire consumer-world happily uses.



    So I agree with you. Who cares.



    Having multiple browsers will introduce the desktop-style mess of having multiple rendering engines, each with their own quirks, ultimately causing a headache for web-developers. It's bad enough on the PC/Mac side. Why introduce that on a handheld/phone?
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