$500 target slapped on Apple as iPad seen dominating $120B tablet market by 2015
Posing the question of whether Apple is the "most valuable company in the world," Credit Suisse on Thursday initiated coverage of the iPad maker with a $500 price target, saying it believes Apple is well positioned to command a majority share of a booming tablet market expect to grow to $120 billion over the next four years.
In his inaugural note to clients, analyst Kulbinder Garcha concluded that Apple should be able to deliver extensive revenue and earnings growth of 50% and 46%, respectively, over the next two years, given that all indicators suggest the company will easily sustain its competitive advantage through its integrated ecosystem of software, hardware and services.
"[T]hree years after the launch of its first iPhone, we believe few handset vendors come close to the quality of Apple?s hardware, software, and services," he wrote. "We also expect the company?s services offering to evolve along with its device portfolio."
To that end, the analyst noted that the success of the iPad only reinforces the notion of increased user loyalty, which could translate to more stable market share in Apple's handset business. As it stands, Garcha's proprietary analysis for tablets indicates that the segment could rise to $120 billion market by 2015, and he expects Apple will maintain a share as high as 50% by that time, given its aggressive pricing, time to market advantage and a software edge.
"This means that iPad should become a $34 billion business by [fiscal 2012]," he wrote. "Further, our proprietary bill of materials (BOM) analysis implies that gross margins for this business will expand to 35% by [the end of fiscal 2011] from around the 27% levels seen in fiscal 2010."
Looking ahead, Garcha identified four major paths that Apple could take which would result in incremental sales and per share earnings of $65 billion and $10.10, respectively, in 2015 when compared to 2010. The first of which is a low-end iPhone, which the analyst calls both "necessary and significant."
"We demonstrate that having successfully saturated the above $500 smartphone market with an 81% share and having grown this segment of the market by a factor of 2.8 since 2008, once distribution is built out, Apple?s smartphone share is likely to plateau around volume of 120 million and global share of 12%," he wrote. Based on his proprietary market by price point and BOM analyses, Garcha believes the company could generate $26 billion in incremental sales and $6 billion in operating profit by 2015 versus 2010 -- adding $4.47 in incremental per share earnings along the way -- through the introduction of a more affordable handset.
More specifically, he said that it is both "necessary and advisable that a low-end iPhone is launched" over the next 12-18 months, adding that any fears of cannibalization of the company's high end devices should be more than offset by the volumes in which the low-end device is likely to sell.
Another untapped growth driver singled out by the analyst would be a expansion of distribution through its retail segment in emerging markets. He notes that currently the company's maintains 236 brick and mortar shops, with only 4 of them existing in emerging markets: China.
"[B]y more aggressively building out an emerging market strategy and based upon current spend per capita on Apple products and income distribution, even after allowing for affordability issues, this could drive an incremental revenue opportunity of $19 billion from our 2010 levels along with $4.3 billion in operating profits and $3.16 in EPS," he wrote.
Meanwhile, penetration within the enterprise exists as a third major path to growth, according to Garcha. He notes that the Apple's share in the corporate world is significantly smaller than its consumer share in every product category where the company is a major player.
"We argue that the iPad?s rapid adoption could prove to be a Trojan horse from which Apple could see more rapid corporate adoption across its product line," the analyst wrote. "Furthermore, our proprietary Credit Suisse IT Survey demonstrates that not only do CIOs rate the iPhone as the strongest of all platforms across metrics such as roadmap, distribution, and sales, but also that it is set for rapid adoption over the next 12 months."
Finally, Garcha said that while Apple has stated it is not interested in the TV market, he sees the company's services platform, operating system, and hardware strengths as potential drivers that could ultimately lead it to pursue the lucrative broadcasting market.
"We have refrained from estimating the revenue or earnings upside from this strategy, but given the run rate (now in other businesses) is in the billion -- we think this could prove to be a large growth driver in the future," he wrote.
In his inaugural note to clients, analyst Kulbinder Garcha concluded that Apple should be able to deliver extensive revenue and earnings growth of 50% and 46%, respectively, over the next two years, given that all indicators suggest the company will easily sustain its competitive advantage through its integrated ecosystem of software, hardware and services.
"[T]hree years after the launch of its first iPhone, we believe few handset vendors come close to the quality of Apple?s hardware, software, and services," he wrote. "We also expect the company?s services offering to evolve along with its device portfolio."
To that end, the analyst noted that the success of the iPad only reinforces the notion of increased user loyalty, which could translate to more stable market share in Apple's handset business. As it stands, Garcha's proprietary analysis for tablets indicates that the segment could rise to $120 billion market by 2015, and he expects Apple will maintain a share as high as 50% by that time, given its aggressive pricing, time to market advantage and a software edge.
"This means that iPad should become a $34 billion business by [fiscal 2012]," he wrote. "Further, our proprietary bill of materials (BOM) analysis implies that gross margins for this business will expand to 35% by [the end of fiscal 2011] from around the 27% levels seen in fiscal 2010."
Looking ahead, Garcha identified four major paths that Apple could take which would result in incremental sales and per share earnings of $65 billion and $10.10, respectively, in 2015 when compared to 2010. The first of which is a low-end iPhone, which the analyst calls both "necessary and significant."
"We demonstrate that having successfully saturated the above $500 smartphone market with an 81% share and having grown this segment of the market by a factor of 2.8 since 2008, once distribution is built out, Apple?s smartphone share is likely to plateau around volume of 120 million and global share of 12%," he wrote. Based on his proprietary market by price point and BOM analyses, Garcha believes the company could generate $26 billion in incremental sales and $6 billion in operating profit by 2015 versus 2010 -- adding $4.47 in incremental per share earnings along the way -- through the introduction of a more affordable handset.
More specifically, he said that it is both "necessary and advisable that a low-end iPhone is launched" over the next 12-18 months, adding that any fears of cannibalization of the company's high end devices should be more than offset by the volumes in which the low-end device is likely to sell.
Another untapped growth driver singled out by the analyst would be a expansion of distribution through its retail segment in emerging markets. He notes that currently the company's maintains 236 brick and mortar shops, with only 4 of them existing in emerging markets: China.
"[B]y more aggressively building out an emerging market strategy and based upon current spend per capita on Apple products and income distribution, even after allowing for affordability issues, this could drive an incremental revenue opportunity of $19 billion from our 2010 levels along with $4.3 billion in operating profits and $3.16 in EPS," he wrote.
Meanwhile, penetration within the enterprise exists as a third major path to growth, according to Garcha. He notes that the Apple's share in the corporate world is significantly smaller than its consumer share in every product category where the company is a major player.
"We argue that the iPad?s rapid adoption could prove to be a Trojan horse from which Apple could see more rapid corporate adoption across its product line," the analyst wrote. "Furthermore, our proprietary Credit Suisse IT Survey demonstrates that not only do CIOs rate the iPhone as the strongest of all platforms across metrics such as roadmap, distribution, and sales, but also that it is set for rapid adoption over the next 12 months."
Finally, Garcha said that while Apple has stated it is not interested in the TV market, he sees the company's services platform, operating system, and hardware strengths as potential drivers that could ultimately lead it to pursue the lucrative broadcasting market.
"We have refrained from estimating the revenue or earnings upside from this strategy, but given the run rate (now in other businesses) is in the billion -- we think this could prove to be a large growth driver in the future," he wrote.
Comments
Sweet! I hope he is right. Doesn't make me feel too bad about waiting until the stock was $340 to buy in.
I thought I was late buying at $210.......go AAPL!
Wait until the MBA profile is rolled out across the entire line, and until markets such as China and India start to get wealthier. It's going to be a blockbuster. (Look at the automobile market -- incl. the high-end -- for an analogy).
He does not even address Apple's biggest (sleeper) growth opportunity: Macs, with currently just a 4% global share.
Wait until the MBA profile is rolled out across the entire line, and until markets such as China and India start to get wealthier. It's going to be a blockbuster. (Look at the automobile market -- incl. the high-end -- for an analogy).
That's an excellent point. It could very well be that the good experiences people are having with the iPhone and iPad lead them towards trying out a Mac. That's the case for me personally. Haven't given into the temptation yet, but it's growing. Love my iPad and iPhone so far.
WOW...I suddenly wish I had asked my parents for $600 in AAPL stock rather than a mac mini when I graduated HS in 04...some quick back of envelope calculation shows that a $600 investment in 04, before the split, would be about $42000 if AAPL hits that mark...damn...
I think there was a website where you culd plug in an Apple computer model and when you bought it and it would tell you what your stock holding would be if you had bought and held APPL instead. The $2k I dropped on a PowerBook in 1993... Well, I try not to think about it!
I much prefer this article, which speaks to the old buy and hold mantra (Apple is my only buy and hold stock, for sure).
http://seekingalpha.com/article/2581...and-hold-stock
That's an excellent point. It could very well be that the good experiences people are having with the iPhone and iPad lead them towards trying out a Mac. That's the case for me personally. Haven't given into the temptation yet, but it's growing. Love my iPad and iPhone so far.
For most people the excuse is cost, to that I say what other laptop can you resell later & get at least %40 of original purchase price after 3 years? Sell the old Mac to put towards new Mac, suddenly they aren't more expensive than PCs.
Also, you can still run Windows natively on your Mac, though I don't know anyone yet who has switched who has decided to use Windows. Come on, buy a Mac, you know you want to.
Hmm..., it sounds like this guy is trying to make a name for himself. He's taken a solid bet of a company, and then slapped the highest price target of the lot on it to get headlines and attention. Whether or not AAPL gets to $500 (nobody knows exactly what the future holds), the guy has already achieved his objective of getting noticed.
Take what these analysts say with a pinch of salt. He might be right, he might be wrong. For him it's about making a splash and getting paid.
"In his inaugural note to clients..."
Hmm..., it sounds like this guy is trying to make a name for himself. He's taken a solid bet of a company, and then slapped the highest price target of the lot on it to get headlines and attention. Whether or not AAPL gets to $500 (nobody knows exactly what the future holds), the guy has already achieved his objective of getting noticed.
Take what these analysts say with a pinch of salt. He might be right, he might be wrong. For him it's about making a splash and getting paid.
It's actually not the highest target. I checked. Some firm has $550.
That's an excellent point. It could very well be that the good experiences people are having with the iPhone and iPad lead them towards trying out a Mac. That's the case for me personally. Haven't given into the temptation yet, but it's growing. Love my iPad and iPhone so far.
I don't buy the case (no pun intended) for a low priced iPhone. First of all, the analyst is ignoring the fact that the iPhone is subsidized (at least in the U.S.) so that most people are paying as little as $200 for it. And previous generation models tend to go for $100 at least some of the time. So I'm not sure Apple needs another lower priced model. And what would they take out and have it still be an iPhone?
I think the analysts are all missing an area where substantial future Apple growth is going to come from: Apple is completing the North Carolina server farm with rumors that they're going to start expanding it to double the size. In addition, Apple is going to start building a new campus on the old HP (I think) property which is much larger than their current campus. What is all that space for? I think Apple is planning either some major new product lines, new services or some category we haven't even thought of yet. Something really BIG. Maybe this is 3-5 years down the road, but I truly think the evidence points to a major expansion of Apple, as big as it currently is.
Apple survived the recession (which we could yet fall back into) better than any other company in the world, aside perhaps from the oil companies. Imagine how well they're going to do as the world economy improves, even if there are some parts shortages (like memory) due to the tragedy in Japan. Up until a few years ago, the most successful consumer electronics launch of all time was DVD players. It took DVD players (from multiple companies) 21 months to sell 1 million units. Apple sold 1 million iPad2s last weekend. And yet some idiot downgraded the stock yesterday? I don't care - he did me a favor - I bought some more and I'm already ahead.
J.
Sounds nice. Now how about a dividend payment, or is Apple trying to be the first company to loose $40 billion when the bank its sitting in goes bankrupt.
While I like the idea of a dividend, your fear (if you're serious) of it being at risk in a bank failure is moot - Apple does not have it in a form that is affected by the FDIC insurance limit.
Seriously, that's a bit much. Android tablets will come around eventually and Microsoft will have Windows 8 ready in 2013-ish that will then compete better than any offering they have now (they might just as well use Windows Phone 7 OS).
What's the next move that Apple will make to justify the $500 - iOS kitchen and wash appliances or maybe an integrated AppleTV in an actual television set? Two to three years in the lead with the iPad does not justify that. Can someone say "bubble"?
Sounds nice. Now how about a dividend payment, or is Apple trying to be the first company to loose $40 billion when the bank its sitting in goes bankrupt.
You clearly have no clue what you're talking about.
It's actually not the highest target. I checked. Some firm has $550.
Yeah, $500 is not an outlandish target, especially considering Apple's consistent revenue growth. About the lowest target I've seen is $450, and that was a few months ago. One question I have is whether or not the stock will split again. Not that I have a preference either way, but it has split a couple of times before.
The Apple Store is also a way to sell and provide good customer service. Where do I go when something goes wrong with my Xoom or I need help with native Android apps?
You would go to the Apple store to buy something better.