Report: iPhone world share limited by revenue deals
Opening its coverage of Apple for the first time, Bernstein Research has warned that the company may have to opt for marketshare instead of profit if it wants the iPhone to gain acceptance beyond a handful of countries.
The wealth management firm warned investors that Apple's current revenue sharing agreements with AT&T, O2, and T-Mobile were likely to provide the iPhone maker with substantial profits, but could hurt the company's long-term success in countries where the exclusive deals were with carriers that only hold a small (albeit significant) portion of the market in their respective countries. Many of these countries have alternate carriers which could technically support the iPhone but have been locked out as a result, said Bernstein senior analyst Toni Sacconaghi, Jr.
"This could... limit the iPhone's addressable market, since each of its carrier partners typically have 25-40% share in their respective markets," he said.
Sacconaghi also cautioned his firms client's by noting that these deals, which bind customers to long-term contracts to collect revenue, would not always be effective in certain countries. In Italy and Russia, cellphone customers typically opt for prepaid phones and so would have to pay the full cost of the phone up front. This would negate much of the profit or else increase the initial cost of the phone to maintain the same profit level.
Future introductions are most likely to address key markets where postpaid (contract) customers dominate, according to the report. Issuing a relatively detailed prediction, Sacconaghi said he expected Apple to release its cellphone in Australia, Spain, and Taiwan within half a year and for Japan and Korea sometime later. Apple would have access to as many as 515 million subscribers in these regions if it supported every carrier but would face a much tougher prospect persuading customers outside of these areas to accept similar agreements and pricing.
"If Apple decides to launch the iPhone in additional markets, it will likely have to settle for much lower revenue sharing, or abandon revenue sharing altogether," the analyst reported.
In turn, these choices could ultimately affect Apple's ability to reach its stated goal of 10 million iPhones sold by the end of 2008, he added. Estimates by Bernstein would have Apple selling just 4-5 million iPhones during the 2008 calendar year within the US, making the Cupertino, Calif.-based firm dependent on foreign sales to reach its target.
Within the safety of its confirmed markets, though, Apple was predicted to reap a significant reward. While the iPhone's recent price drop put it at the same price as a typical BlackBerry smartphone in the US, the revenues Apple would collect from AT&T were estimated at $14 -- roughly double what the BlackBerry's creator, Research in Motion, already received from providers for its own phones and mail services. Apple might collect as much as $360 from each iPhone customer in the US over two years; Britain's O2 would supply even more at $500.
Still, Sacconaghi argued that Apple would need to really move units, not just skim from a small user base, to avoid disappointing shareholders in the future. Bernstein raised its share targets to $175 but would start covering Apple only as an average "Market-perform" company, as any perceived shortcoming in sales could damage the company's stock value.
"We believe an investor buying Apple's stock at its current price must believe that the company can sell 10 [million] iPhones in 2008 without sacrificing the high profitability of the business -- a scenario we view as unlikely," the analyst said.
The wealth management firm warned investors that Apple's current revenue sharing agreements with AT&T, O2, and T-Mobile were likely to provide the iPhone maker with substantial profits, but could hurt the company's long-term success in countries where the exclusive deals were with carriers that only hold a small (albeit significant) portion of the market in their respective countries. Many of these countries have alternate carriers which could technically support the iPhone but have been locked out as a result, said Bernstein senior analyst Toni Sacconaghi, Jr.
"This could... limit the iPhone's addressable market, since each of its carrier partners typically have 25-40% share in their respective markets," he said.
Sacconaghi also cautioned his firms client's by noting that these deals, which bind customers to long-term contracts to collect revenue, would not always be effective in certain countries. In Italy and Russia, cellphone customers typically opt for prepaid phones and so would have to pay the full cost of the phone up front. This would negate much of the profit or else increase the initial cost of the phone to maintain the same profit level.
Future introductions are most likely to address key markets where postpaid (contract) customers dominate, according to the report. Issuing a relatively detailed prediction, Sacconaghi said he expected Apple to release its cellphone in Australia, Spain, and Taiwan within half a year and for Japan and Korea sometime later. Apple would have access to as many as 515 million subscribers in these regions if it supported every carrier but would face a much tougher prospect persuading customers outside of these areas to accept similar agreements and pricing.
"If Apple decides to launch the iPhone in additional markets, it will likely have to settle for much lower revenue sharing, or abandon revenue sharing altogether," the analyst reported.
In turn, these choices could ultimately affect Apple's ability to reach its stated goal of 10 million iPhones sold by the end of 2008, he added. Estimates by Bernstein would have Apple selling just 4-5 million iPhones during the 2008 calendar year within the US, making the Cupertino, Calif.-based firm dependent on foreign sales to reach its target.
Within the safety of its confirmed markets, though, Apple was predicted to reap a significant reward. While the iPhone's recent price drop put it at the same price as a typical BlackBerry smartphone in the US, the revenues Apple would collect from AT&T were estimated at $14 -- roughly double what the BlackBerry's creator, Research in Motion, already received from providers for its own phones and mail services. Apple might collect as much as $360 from each iPhone customer in the US over two years; Britain's O2 would supply even more at $500.
Still, Sacconaghi argued that Apple would need to really move units, not just skim from a small user base, to avoid disappointing shareholders in the future. Bernstein raised its share targets to $175 but would start covering Apple only as an average "Market-perform" company, as any perceived shortcoming in sales could damage the company's stock value.
"We believe an investor buying Apple's stock at its current price must believe that the company can sell 10 [million] iPhones in 2008 without sacrificing the high profitability of the business -- a scenario we view as unlikely," the analyst said.
Comments
If Steve says they'll ship x of y, don't they usually do about 3/2 + of x?
And the point of the iPhone (from the mobile operators perspective) is to convince people to jump ship and sign with them, hence the exclusivity.
In countries where this model doesn't fit (illegal to lock, etc) I'm sure Apple has a plan for them.
If consumers had greater sway over politicians than the deep pockets of the carriers and cell phone manufacturers, that's what the laws would say in any reasonably democratic country.
Did Steve say 10 mil phones by end of 2008 or 10 million phones in 2008.
I am a bit confused.
Did Steve say 10 mil phones by end of 2008 or 10 million phones in 2008.
The latter. He's said it about 5 times now.
The latter. He's said it about 5 times now.
Nah, I believe it's the former....
Everyone knows the iPhone shouldn't have been locked to one carrier per country in the first place, except Apple.
I don't know much about Europe but in the US there is an over looked advantage to locking the phone to one carrier in the short term.
Apple was able to break the control the carrier had over the phone manufacturer. If Apple had released the phone to all carriers in the US it would not function at all the way it does now. Most of the apps would not be allowed to freely function without additional charge.
In the long term if the iPhone is a hit product Apple is in a better position to negotiate with other carriers for the privilege of using the phone. Or Apple could be in a position to take the phone completely off of the mobile carrier system and use another business model entirely.
Apple is doing what it does best: Making great products for a premium market with a decent, although not necessarily huge market share (iPod excepted).
Apple's iPhone may never command a huge percentage of the smart phone market because the market already existed. The iPod was a new market, still small when the iPod took off. It took off because of the iPod.
Jobs has a plan. He's up to something. We're just not sure what it is.
In countries where this model doesn't fit (illegal to lock, etc) I'm sure Apple has a plan for them.
The plan is to not to go there at all or until the current carrier contracts are up. Hopefully by then Visual Voicemail will be commonplace.
Everyone knows the iPhone shouldn't have been locked to one carrier per country in the first place, except Apple. They need to get out of this mindset. Let's hope all those European carrier contracts are short ones.
I don't know that. I want exclusive carriers. I want Apple to make carriers add feaures they should have added or removed decades ago. Visual Voicemail & $20 unlimited data rates are a good start.
Next I'd like to see them replace the SMS icon with an iChat icon (which can still be used as SMS when a mobile number is used). There are countless other reasons, and while I feel I'm creative enough to find other ways that the carrier can add features to benefit the user I don't have the time to waste and think Apple will do a much better job at making it happen.
I am a bit confused.
Did Steve say 10 mil phones by end of 2008 or 10 million phones in 2008.
The latter. He's said it about 5 times now.
Nope, the former. 18 months for 10M iPhones from at least 4 countries and probably a few more to be added to that last in 2008. I don't thnk it's a hard goal to reach. I think 3M sold in the US is what we'll here at MWSF08.
Remember, Jobs is an megalomaniac. Everyone told him that Apple has no experience and no chance of making it in the cell phone market. IMO, he will be doing everything in his power to make sure he dominates the high-end phone market. Lowered prices and updated versions will be coming faster than you can say folie de grandeur. He will prove them all wrong no matter what it takes.
This research firm is saying nothing new, they're just saying it differently.
And there has been credibility gaps in reports from the firm in the past - these are the same folks that claimed the iPhone wouldn't be announced at Macworld.
http://www.applegazette.com/mac/bern...e-at-macworld/
yet...the iPhone had an introduction at the MacWorld Expo Keynote.
http://www.iphonelovers.net/news/mar...d-keynote.html
Not that it's not accurate with this prediction, but there has been flaws in it's crystal ball in the past.
I don't know much about Europe but in the US there is an over looked advantage to locking the phone to one carrier in the short term.
Apple was able to break the control the carrier had over the phone manufacturer. If Apple had released the phone to all carriers in the US it would not function at all the way it does now. Most of the apps would not be allowed to freely function without additional charge.
In the long term if the iPhone is a hit product Apple is in a better position to negotiate with other carriers for the privilege of using the phone. Or Apple could be in a position to take the phone completely off of the mobile carrier system and use another business model entirely.
This is an outstanding observation. Everyone carping -- developers, analysts, unlockers, consumer-electronics-geeks, etc etc -- has missed this key point.
Let's give this product at least one generation before all the carping?
Steve Jobs got it RIGHT! Profitability is of primary importance.
Motorola has approximately 21% of the cell phone market share in 2007 and it's LOSING MONEY. Apple has only approximately 3% of the world computer market, yet Apple has the highest profitability of the major computer manufacturers. Apple stock is among the best performing and Motorola stock is among the worst performing. Profitability is better than market share.
Apple isn't looking to sell a laptop for $100, and it sure is not looking to sell a cell phone for $10 either.
Apple's niche is high quality, high performance, high design, with excellent service. It's not looking to compete at the low end by going for market share. Apple is the BMW or Porsche of the cell phone industry, and they are very profitable with only a small share of the market.
Apple doesn't need to have every cell phone service provider in a country sell its products. It only needs ONE good cell phone company to sell Apple products. THAT is the attraction: the people that want quality and service WILL move to that service provider. That is the whole point. That is why the cell phone companies are competing to be the sole iPhone provider: That provider WILL attract the users who want the iPhone. Toni Sacconaghi may be an analyst, but he sure is NOT a marketeer!
Nope, the former. 18 months for 10M iPhones from at least 4 countries and probably a few more to be added to that last in 2008. I don't thnk it's a hard goal to reach. I think 3M sold in the US is what we'll here at MWSF08.
People continue to say this, listen. Watch this video and listen to what he says, skip to 2:30, and listen this time. God give me patience.
People continue to say this, listen. Watch this video and listen to what he says, skip to 2:30, and listen this time. God give me patience.
I wasn't satisfied with the YouTube link you supplied as the casual setup could have simply been Jobs misspeaking. So I dug up the MWSF07 Keynote to see what he said then.
Watch iPhone Introduction ? 1:16:54 ? touché
There are only 20M Blackberrys sold since 1999. BBs are sold at over 300 carriers worldwide. 50% of BB sales are at the enterprise level-not retail. There are about 10 different BB models. BBs offer 3G and GPS.
vs.
Apple launches with 2 (now only 1) model which is sold directly to consumers on a slow network and no GPS.
My money has been on Apple. RIMM stock has been doing very well lately but I think its due in large part to speculation that MSFT or NOK will make an offer for them.
former Wall Streeter
Things to consider about 10M iPhone forecast:
There are only 20M Blackberrys sold since 1999. BBs are sold at over 300 carriers worldwide. 50% of BB sales are at the enterprise level-not retail. There are about 10 different BB models. BBs offer 3G and GPS.
vs.
Apple launches with 2 (now only 1) model which is sold directly to consumers on a slow network and no GPS.
My money has been on Apple. RIMM stock has been doing very well lately but I think its due in large part to speculation that MSFT or NOK will make an offer for them.
former Wall Streeter
" RIM stated that approximately 1.45 million BlackBerry subscriber accounts were added in [this latest] quarter and that over 3 million devices were shipped."
Now I know shipped doesn't mean sold, but RiM could be selling 10M units a year. With Apple's 24-month accounting method and direct revenue from the carriers Apple looks to be in a very good position for the long term.
The reported $100 per user fee for Exchange PUSH seems to be the real money maker for RiM. Their stock quadrupled last year to Apple's tripling and they seem to be doing even better since the the split.
I never imagined Nokia would try to buy RIM out. At the rate RIM's market cap is growing, they may soon buy out Nokia.