iPhone cost expected to decline 20 percent annually
While initial sales of Apple Inc's new iPhone are expected to be modest due to its high price, the overall cost of the device is likely to fall at a 20 percent annual rate over the next 10 years, according to financial services firm Needham and Co.
Analyst Charles Wolf, who on Monday raised his 12-month price target on shares of the Cupertino-based iPhone maker to $135 from $115, said the declining cost will coincide with falling component prices and a rise in wireless carrier subsidies.
"The decline in price should accelerate demand as the iPhone invades the sweet spot of the mobile phone market," he wrote in a report distributed to clients.
Based on a series of calculated assumptions, including those related to price declines and subsidy increases, Wolf compiled a 10-year iPhone revenue and earnings forecast. In his model, the analyst assumed that Cingular will subsidize the iPhone $100 initially with the subsidy increasing $5 annually to $150 by the final year in his forecast.
"This reduces the price of the iPhone with a two-year plan to $76 in the final year of our forecast, equivalent to about a 20 percent annual decline," he told clients. "Our underlying assumption is that as Apple enhances the iPhone’s features and services, owners will use the phone’s data services more intensively and pay higher data access fees as a result."
By 2016, Wolf sees iPhone sales reaching 134 million per year, or approximately 7 percent of what is then expected to be a 2 billion unit-per-year global market. "To place this percentage in perspective," he noted, "Nokia’s sold over 300 million mobile phones in 2006 for a market share higher than 30 percent while Motorola shipped 160 million phones."
In his report, the analyst also said he would "not be surprised to see iPhone bars spring up in the Apple Stores once the product is launched in June."
Source: Needham and Co.
Wolf added that his free cash flow valuation model converts his iPhone forecast into $24 of value per Apple share.* "Factoring in cannibalization of iPod sales translates into a net addition of $20," he wrote.
Analyst Charles Wolf, who on Monday raised his 12-month price target on shares of the Cupertino-based iPhone maker to $135 from $115, said the declining cost will coincide with falling component prices and a rise in wireless carrier subsidies.
"The decline in price should accelerate demand as the iPhone invades the sweet spot of the mobile phone market," he wrote in a report distributed to clients.
Based on a series of calculated assumptions, including those related to price declines and subsidy increases, Wolf compiled a 10-year iPhone revenue and earnings forecast. In his model, the analyst assumed that Cingular will subsidize the iPhone $100 initially with the subsidy increasing $5 annually to $150 by the final year in his forecast.
"This reduces the price of the iPhone with a two-year plan to $76 in the final year of our forecast, equivalent to about a 20 percent annual decline," he told clients. "Our underlying assumption is that as Apple enhances the iPhone’s features and services, owners will use the phone’s data services more intensively and pay higher data access fees as a result."
By 2016, Wolf sees iPhone sales reaching 134 million per year, or approximately 7 percent of what is then expected to be a 2 billion unit-per-year global market. "To place this percentage in perspective," he noted, "Nokia’s sold over 300 million mobile phones in 2006 for a market share higher than 30 percent while Motorola shipped 160 million phones."
In his report, the analyst also said he would "not be surprised to see iPhone bars spring up in the Apple Stores once the product is launched in June."
Source: Needham and Co.
Wolf added that his free cash flow valuation model converts his iPhone forecast into $24 of value per Apple share.* "Factoring in cannibalization of iPod sales translates into a net addition of $20," he wrote.
Comments
I will keep it safely and show it back in 9 years...
As a side, I don't see how a high-teck consumer product can stay on the market for 9 years... I guess they are talking about product lines.
Nice chart!
I will keep it safely and show it back in 9 years...
As a side, I don't see how a high-teck consumer product can stay on the market for 9 years... I guess they are talking about product lines.
Yeah, this will be the iPhone product line. I can't imagine Apple selling the same hardware in 3 years time, never mind 9 years time! Certainly flash memory capacity will probably double every year. 8GB in 2007 -> 64GB in 2010 -> ~1TB in 2015! That will obviously lead to lower storage variants that are vastly cheaper with integrated phone chips that are lower power and faster ...
If Apple also release a lower-priced nano/mini iPhone then I wonder how that will affect those predictions?
am i the only one here who is sick of reading these analyst reports? i wish i could get paid to sit and speculate on companies like apple all day.
Well, I would agree with but the last time I said I was sick of analyist reports, I got smacked down by several readers of these forums telling me not to read the articles if I didn't like them.
So, publically, my stance is that yes, you are the only one sick of them. Privately, I'm with you all the way on being sick of reading random speculation. I'm just glad that they can at least stop speculating about when/if an iPhone will be announced. Although I suspect they'll quickly move back to speculation on the true widescreen iPod.
What did they do with the Phone?
Who wants to use a touchscreen? Yuck!
1000 Songs and 1000 Contacts, in your ear!
The new iPhone shuffle is completely voice activated.
Nice chart!
I will keep it safely and show it back in 9 years...
As a side, I don't see how a high-teck consumer product can stay on the market for 9 years... I guess they are talking about product lines.
Most don't last one year before getting an update. Those prices will probably come down for new variants. I hope the drop as quickly as the iPod photo pricing did.
quickly move back to speculation on the true widescreen iPod.
Some have already been complaining that the iPhone doesn't have a "true" widescreen display. It seems to be a little silly complaint, but it is true that it isn't 16:10 or 16:9.
i dont even know what to say to that.
Behold the iPhone shuffle:
What did they do with the Phone?
Who wants to use a touchscreen? Yuck!
1000 Songs and 1000 Contacts, in your ear!
The new iPhone shuffle is completely voice activated.
You forgot the video jack to plug in directly behind the ear.
Some have already been complaining that the iPhone doesn't have a "true" widescreen display.
Yes, forgetting that widescreen got it's marketing start with the TiPB's 3:2 screen seven years ago. The same ratio as the iPhone. Now everyone uses widescreen to describe their 3:2 (and wider) displays. Don't like Apple, redefine an industry wide term, simple really!
i wish i could get paid to sit and speculate on companies like apple all day.
What do you think we do here? And, we don't even get paid!!!!!!!
Delayed gratification is a beautiful skill to master!!!!
if I can wait until 2012, I can get one for free. However if I can hold out until 2013, I can get the 4 GB version and get paid about $100 and if I go for the 8 gigger I can make a sweet $120.
Delayed gratification is a beautiful skill to master!!!!
That's just being absurd. I don't think anyone ever meant that every year it is reduced by 20% of the original value.
That's just not Apple. They rarely reduce prices on existing technology. Apple is much more about adding new functionality instead of lowering prices.
Over the next 5 years I see the price remaining the same, but lots of new features being added over time to support the current price point.
See, now I'm an analyst.
Apple does lower the price, just not as quickly and steeply as others do.
In other consumer electronics companies the argument may be made that as costs fall so will the selling price.
That's just not Apple. They rarely reduce prices on existing technology. Apple is much more about adding new functionality instead of lowering prices.
Over the next 5 years I see the price remaining the same, but lots of new features being added over time to support the current price point.
See, now I'm an analyst.
Actually, if you'd seen the CNBC interview with Steve Jobs, he did note in response to a question about price that he expected the price to drop, and made a passing mention of economies of scale as sales increase. Pretty much like the iPod has.
Yes, as newer models have been introduced, prices bumped again, but the sales price has in large part dropped from the original price.
Just look at the computers. Same thing. A new version that introduces new tech often comes at a higher price, but as speed bumped models appear later, the price has tended downward. Macs today are much more comparable with PCs, which can be attributed to higher PC prices and lower Mac prices.
But, yeah, new features do come faster than price breaks.
If Apple also release a lower-priced nano/mini iPhone then I wonder how that will affect those predictions?
That's the iPhone I personally am holding out for. Bring me iPhone junior Apple please?
/on a side note I think 10 year predictions in the tech industry are absurd. I'd be more interested in an in-depth 3 year prediction.
Well in 2002 the 10GB iPod was $499. Today the 80GB iPod is $349.
Apple does lower the price, just not as quickly and steeply as others do.
The original 5 GB iPod was introduced for US$399.
Todays 4GB nano has almost as much storage and twice the battery life for $199
A 10 GB model was introduced in 2002 for US$499.
Todays 8GB nano has almost as much storage and twice the battery life for $249
So In 5 years the price dropped in half.
The battery life more than doubled
The weight dropped 75%
The screen is now color
The 4GB nano also holds just as many songs as the 5GB iPod did because of better compression technology.
Certainly flash memory capacity will probably double every year.
Certainly probably indeed.
if I can wait until 2012, I can get one for free. However if I can hold out until 2013, I can get the 4 GB version and get paid about $100 and if I go for the 8 gigger I can make a sweet $120.
Delayed gratification is a beautiful skill to master!!!!
Wouldn't that be
$250 presumed iPhone components cost * .8^5 = $82 components cost for a 4 GB iPhone equal (or equivalent, maybe) to the current one in 2012?
I think that is sensible, as is expecting
a 7% market share,
a "2 billion unit-per-year global market,"
etc.
Obviously these analysts can't predict the future, and are usually very wrong, but they do some of the homework for us, and publish it (which has similar benefits to "peer review"), etc. It's just more information for us.