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Apple: How Big Is the Potential iPhone Market?

by: Eric Savitz June 03, 2008 | about stocks: AAPL    

Eric Savitz

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At the Apple (AAPL) Worldwide Developers Conference coming up next week, CEO Steve Jobs is widely expected to unveil a new 3G version of the iPhone. Meanwhile, in the last few weeks, a number of carriers have announced deals to sell the phone, which will make it available in dozens of countries. Every time there’s another announcement, the Street issues higher estimates of the total addressable market for the device.

Pacific Crest’s Andy Hargreaves today asserts that the numbers have gotten out of hand. He points out in a research report this morning that the carriers that have announced deals with Apple have total subscribers of 669 million people, an increase of 520 million in the last month. That’s impressive: Global handset sales are expected to 1.27 billion this year, growing to 1.37 billion next year. But to state the obvious, not everyone wants a smartphone. “A substantial majority of these subscribers should not be considered potential iPhone purchasers,” he cautions. Hargreaves forecasts global smartphone sales at 61 million units this year, and 81.3 million next year; of that he sees Apple taking 17.2% share this year, and 18.8% next year. That comes to 10.5 million units in 2008, and 15.3 million in 2009.

That said, Hargreaves says current estimates could be driven higher by compelling corporate software applications for the phone; and he says carrier subsidies that lower the cost of the phone for customers would also boost demand. Another potential boost: carrier deals in China, Russia and Japan.

Hargreaves maintains an Outperform rating and $225 price target on the stock.

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This article has 11 comments:

  •  
    Jun 03 03:19 PM
    That said, Hargreaves says current estimates could be driven higher by compelling corporate software applications for the phone! Yo baby $225. here we come I do not see to much downside except for a bear market AAPL is best of breed.To get your iPhone or anything else your heart desires at below wholesale visit:seeksomething.com
    Reply
  •  
    Jun 03 03:28 PM
    Lots of people who today would say they don't want a smart phone will be wanting one when they see the versatility and portability of information that the iPhone, blackberry or Palm brings. Just like those who swore they'd never buy a mobile phone until they realized they could finesse the edges of life a bit better with one than without.
    Reply
  •  
    Jun 03 03:30 PM
    Apple just released a very buggy upgrade to its operating system. OS 10.5.3 released Friday is causing major problems for many Mac users.

    Wonder when analysts and the media will force Apple to address the problems and fix them. See Apple's support forums.
    Reply
  •  
    Jun 03 04:03 PM
    to get back to the reality, where not everyone in potential market buys your product.

    iphone had a good "potential" already with the first generation iphone. yet they managed to sell only 330,000 iphones in europe to "potential" customer base of nearly 100m. multiply the by 6 and you get some 2m iphones sold for the increase of 520m in "potential market" / half year.

    that's with the current price point. of course apple can choose to lower the price point in order to sell more iphones, but it means 1) lower profit margin and 2) less ipods sold.

    and one last thing: to get that increase of 520m potential market, apple already had to give up their revenue sharing model implying, yep you guessed right, lower profit margin.

    funny how analysts on this blog keep on forgetting some details :)
    Reply
  •  
    Jun 03 08:11 PM
    samij,

    To increase 520m potential market, apple would need have lower profit margin.

    This is how product strategy evolves. During the initial stage - your startup cost is high, there is a huge risk is involved in introducing the product. Once the product is successful, it is more about scalability. The fixed costs can be distributed across multiple units and there is also ability to reduce the costs because of margin.

    If Apple wanted, they could come with a product strategy to get rapid sales. But the challenge will be to sustain the growth. That is the reason why Apple is managing growth and when a product reaches maturity, they introduce new products.
    Reply
  •  
    Jun 04 01:45 AM
    arkay,

    you got it partially right, apple has lowered profit margin by giving up its revenue sharing model to get agreements with the operators having those 520m customers. with the current prices they can sell about 4m iphones/year to those customers.

    to increase the sales from that, they need to lower the price of the unit. this not only decreases iphone profits, but also start eating their ipod sales. if they offer iphone for 299, very few will buy touch for the same price.

    bottom line being, the profit potential is much much lower than you'd expect from the numbers given in the article.
    Reply
  •  
    Jun 04 08:45 AM
    explain please --with every change in prediction of iphone sales volumn there seems to be based on iphone sales an upward or downward valuation on the stock ---how much impact on the stock value does this iphone carry because it is not like aapl is a one product company
    Reply
  •  
    Jun 04 10:14 AM
    Keeping it simple for some posters: iPhone has a good chance of repeating iPod dominance in the Smartphone category. That could work out to between 12M and 16M in 2008, between 25M and 45M in 2009, and so on (you do the math).

    What are the drivers: marketing, technical, visionary, and innovative excellence, each unmatched on the planet. Apple is the Tiger Woods of tech. Any questions?
    Reply
  •  
    Jun 04 01:55 PM
    Man, I hope apple delivers. I just bought 16K of their stock yesterday @ 187. I wrote more about it here -
    www.savingtoinvest.com... - and am hoping they over deliver as usual. Great info in this post.

    Andy
    Reply
  •  
    Jun 04 01:55 PM
    Man, I hope apple delivers. I just bought 16K of their stock yesterday @ 187. I wrote more about it here -
    www.savingtoinvest.com... - and am hoping they over deliver as usual. Great info in this post.
    Reply
  •  
    Jun 05 08:53 AM
    Actually, 3G phone that I use today was purchase in 2003 through the Hong Kong Hutchison company which is now the authorize distributor of Apple 3G iPhone in China SAR.

    We 3G because of the speed and other function of the smartphone. We can enter chinese characters with hand writing feature. Internet and email surface. Real time conferencing local and oversea.

    We are looking forward for the new Apple 3G iPhone is the overall style design and possibly HSDPA speed since we have been using 3G service for almost 5 years.

    People like everything (features) inside one single machine, but will they really need all those functions. Therefore, Apple should produce two to three models that will satisfy everybody needs. Even the existing first version iPhone. Customers can choose their model depends upon the functions and prices different of the iPhone.

    Whatever happens to the announcement of 3G iPhone at WWDC 2008 from Steve Jobs, those are good news and do not care too much are previous prediction or rumor.

    Let those who have not yet tried the 3G service to enjoy with the next generation machine (3G iPhone).
    Reply
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