Apple seriously considering iPhone rebate, subsidy - report
Several recent developments on Apple's iPhone strategy have compelled one analyst to raise his estimates and price target on shares of the company, such as word that the iPod maker is seriously considering a move to subsidize the cost of the handset through rebates or other means.
Rebates or subsidies
In an in-depth research note released to clients on Tuesday, American Technology analyst Shaw Wu cited sources who indicate that a mail-in rebate or carrier subsidy for iPhone of $50-150 is under serious consideration by the Cupertino-based electronics firm.
"We are hearing rebates of $50-150 that will be offered by AT&T to lower the price points for iPhone (currently $499 for 4 GB and $599 for 8 GB) and to entice customers to sign longer term voice and data contracts," the analyst wrote. "From AT&T's perspective, a rebate is a great marketing tool and small sacrifice to make to entice a customer to sign up for 2-year voice and data cell phone plans that cost about $75-100 per month (before taxes and fees), meaning $1800-2400 in 'guaranteed' bi-annual revenue."
Revenue share and bounties
Wu also told clients that he believes Apple will be paid a "bounty" for each AT&T customer it signs up through its retail and online stores. "In addition, Apple will likely participate in a revenue sharing agreement where part of the monthly fee charged to customers will go to Apple ," he explained. "Besides the hardware, Apple 's value added for the iPhone to AT&T is its marketing, customer service, and unique software and features, including visual voicemail and the most complete PC experience on a cell phone."
Recurring revenue streams from carriers
In addition, the AmTech analyst estimates Apple to garner "mid to high single digit incremental high margin revenue per user" from its carrier partner, which could potentially surge as high as "low double digits" depending on future iPhone features.
"We view this incremental revenue from the carriers for Apple 's value-added as positive in that it will likely be very high margin, in the 80 percent range, similar to royalty and/or intellectual property (IP) revenue where there is little incremental cost," he wrote. "We believe this recurring revenue stream is high quality and adds an additional degree of stability and predictability to Apple 's financial results."
Adding Apple to AmTech's Focus List
As a result of his findings, Wu has placed Apple on AmTech's "Focus List" while also raising his estimates and price target on consumer electronics firm.
For fiscal 2008, the analyst now estimates Apple to generate sales of $31.1 billion and per-share earnings of $4.15, up from $28.8 billion and $3.75. His model assumes sales of 3.45 million iPhone units during the fiscal year, up from a previously conservative view of 790,000 units. Still, he said, estimates could turn out conservative depending on Apple 's ability to introduce lower cost cell phones which he believes could significantly raise unit assumptions.
"We continue to view Apple as among the strongest fundamental stories with its four-pronged vertically integrated end-to-end portfolio (Mac, iPod + iTunes, Apple TV, and iPhone) and see several catalysts in the quarters ahead, including Mac OS X Leopard, new Macs, new iPods, new movie and carrier partners, and lower cost cell phones," the analyst reiterated in his note to clients.
Wu also raised his price target on shares of Apple to $145 from $118.
Rebates or subsidies
In an in-depth research note released to clients on Tuesday, American Technology analyst Shaw Wu cited sources who indicate that a mail-in rebate or carrier subsidy for iPhone of $50-150 is under serious consideration by the Cupertino-based electronics firm.
"We are hearing rebates of $50-150 that will be offered by AT&T to lower the price points for iPhone (currently $499 for 4 GB and $599 for 8 GB) and to entice customers to sign longer term voice and data contracts," the analyst wrote. "From AT&T's perspective, a rebate is a great marketing tool and small sacrifice to make to entice a customer to sign up for 2-year voice and data cell phone plans that cost about $75-100 per month (before taxes and fees), meaning $1800-2400 in 'guaranteed' bi-annual revenue."
Revenue share and bounties
Wu also told clients that he believes Apple will be paid a "bounty" for each AT&T customer it signs up through its retail and online stores. "In addition, Apple will likely participate in a revenue sharing agreement where part of the monthly fee charged to customers will go to Apple ," he explained. "Besides the hardware, Apple 's value added for the iPhone to AT&T is its marketing, customer service, and unique software and features, including visual voicemail and the most complete PC experience on a cell phone."
Recurring revenue streams from carriers
In addition, the AmTech analyst estimates Apple to garner "mid to high single digit incremental high margin revenue per user" from its carrier partner, which could potentially surge as high as "low double digits" depending on future iPhone features.
"We view this incremental revenue from the carriers for Apple 's value-added as positive in that it will likely be very high margin, in the 80 percent range, similar to royalty and/or intellectual property (IP) revenue where there is little incremental cost," he wrote. "We believe this recurring revenue stream is high quality and adds an additional degree of stability and predictability to Apple 's financial results."
Adding Apple to AmTech's Focus List
As a result of his findings, Wu has placed Apple on AmTech's "Focus List" while also raising his estimates and price target on consumer electronics firm.
For fiscal 2008, the analyst now estimates Apple to generate sales of $31.1 billion and per-share earnings of $4.15, up from $28.8 billion and $3.75. His model assumes sales of 3.45 million iPhone units during the fiscal year, up from a previously conservative view of 790,000 units. Still, he said, estimates could turn out conservative depending on Apple 's ability to introduce lower cost cell phones which he believes could significantly raise unit assumptions.
"We continue to view Apple as among the strongest fundamental stories with its four-pronged vertically integrated end-to-end portfolio (Mac, iPod + iTunes, Apple TV, and iPhone) and see several catalysts in the quarters ahead, including Mac OS X Leopard, new Macs, new iPods, new movie and carrier partners, and lower cost cell phones," the analyst reiterated in his note to clients.
Wu also raised his price target on shares of Apple to $145 from $118.
Comments
And anyone who knows Apple knows that they would NEVER support "mail-in" rebates. They'd sooner cut their own prices before stooping to that level.
-Clive
Wu also raised his price target on shares of Apple to $145 from $118.
This guy seems to be glowing with positive thoughts about Apple lately, doesn't he?
This guy seems to be glowing with positive thoughts about Apple lately, doesn't he?
You're new eh?
"We continue to view Apple as among the strongest fundamental stories with its four-pronged vertically integrated end-to-end portfolio (Mac, iPod + iTunes, Apple TV, and iPhone) and see several catalysts in the quarters ahead, including Mac OS X Leopard, new Macs, new iPods, new movie and carrier partners, and lower cost cell phones," the analyst reiterated in his note to clients.
I hope Apple has that iPhone Nano's design process done already. A shuffle in a sleek phone from Apple with a great UI would be my phone of choice. I've that €300 ready and waiting.
Just an individual investor not an expert but this how I make my living so I have a fair handle on how to interpret these things. Average better than 20% returns from a diversified portfolio of over 80 companies. I'm usally analizing another 40 or so companies to have options of where I can realocate capital as long holdings become sells in part or full.
Wu and Munster take a lot of heat here, some of it fair but mostly I think most of us are just wishing we could be so fortunate. Paid to follow the forums, paid to attend every event that has any releavance and paid to wine and dine anyone that could provide the slightest of hints as to what really goes on behind closed doors, and last but not least to have a name that just might get your phone call responded to at an executive level from within Apple even if they won't take your call.
Wu is a douche-bag. He is fabricating "insider info" to affect stock prices and/or getting investors behind him to bully Apple into doing what he wants it to.
And anyone who knows Apple knows that they would NEVER support "mail-in" rebates. They'd sooner cut their own prices before stooping to that level.
-Clive
Apple does do mail-in rebates. The back-to-school Mac+iPod promotion was one.
If Wu's not pushing this simply to drive up the price (so he can sell), then he must be pretty confident in his sources. And if Apple and AT&T make this speculated "revenue-sharing" plan happen where the handset maker gets a portion of the recurring monthly revenue, that's a pretty big change in how the cellular market works, and the $145 moves into the realm of the possible.
Go Apple!
Wow! Up to 145 from 118. On a 1 year target? That is amazing. I've never really gotten a straight answer though. Is this a 12 month target, renewed every time the new target is announced, or is it a target for some specific date?
Apple's fiscal year ends in September. Wu's target is for September 2008. His previous $118 target was for this September, and was based on iPhone sales. I'm not sure how much the delay of Leopard would influence this years's target, but he is obviously skipping the issue by predicting September 2008 by which time Leopard will be hunting in the tall grass..
At first glance, the $145 target is quite a leap. I don't think there are any other analysts that are beyond $130, and most are still between $100 and $110.
If Wu's not pushing this simply to drive up the price (so he can sell), then he must be pretty confident in his sources. And if Apple and AT&T make this speculated "revenue-sharing" plan happen where the handset maker gets a portion of the recurring monthly revenue, that's a pretty big change in how the cellular market works, and the $145 moves into the realm of the possible.
Go Apple!
If this call is intended to drive up the price it is not working, at least today.
Maybe "Wall Street" disrespects Wu as much as AI members.
Shocker.
The idea behind it: As the market comes to realize how right the analyst was in his predictions of future revenue and profit of the company, the stock price will move towards the target price.
It also gives an indication on whether the analyst thinks the stock is currently undervalued or overvalued. Similarily, it also gives you an indication as to when you should consider selling the stock - given that you believe the analyst got it right on all points.
Does that help you?
does jobs really believe that everybody is going to dish out 75-100 a month for a voice and data plan? plus hundreds (rebate or not) for the phone itself? on which planet does this guy live? i make six figures but am not willing to pay more than 15 a month or so for unlimited data (thats with sprint by the way). and i wont switch to att just because of a fancy shmancy phone! so if i happen to be his target group, he is in for a surprise.
This article is just Wu talking out of his bum. Don't believe it until you see it in writing from at&t or Apple.
...does jobs really believe that everybody is going to dish out 75-100 a month for a voice and data plan?
No doubt. I've known folks that pay close to $150 a month on cell.
No doubt. I've known folks that pay close to $150 a month on cell.
Yeah, this is definitely a phone for the rich. With a 2 year plan for 75-100 plan plus phone you're looking at a starting price of 2300-3000 plus whatever extra talk time and data isn't covered by the plan. Then, at the end of the 2 years, the battery is down to max 30-45 min. of talk time per charge, and you can choose to pay a hundred bucks to send the phone to apple and get a replacement, or buy the "much better" new model, and then the whole process starts again...
I find it interesting that people are expecting a "cheaper" version to come out. What features will they remove to make it cheap enough for the average user? I can't think of anything you could do to tone this one down without making it just another phone....
does jobs really believe that everybody is going to dish out 75-100 a month for a voice and data plan? plus hundreds (rebate or not) for the phone itself? on which planet does this guy live? i make six figures but am not willing to pay more than 15 a month or so for unlimited data (thats with sprint by the way). and i wont switch to att just because of a fancy shmancy phone! so if i happen to be his target group, he is in for a surprise.
Cingular charges $19.99/month for an uniimited EDGE data plan, with voice plans that start about $30. There's no reason to believe that the iPhone would mandate a more expensive plan, although they may tack on charges for the extra network features, i.e. visual voicemail.
I find it interesting that people are expecting a "cheaper" version to come out. What features will they remove to make it cheap enough for the average user? I can't think of anything you could do to tone this one down without making it just another phone....
Uh..do you know how the tech economy works? When the first iPod came out, it was more expensive than most iPods today, had almost no storage, no clickwheel, no color screen, no video, and was big and clunky. Today the average nano is 10x better and cheaper, too. The iPhone will follow the same path.