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Analyst: Yes, Virginia, There is an Apple Cell Phone

TMO Reports - Analyst: Yes, Virginia, There is an Apple Cell Phone

by , 1:40 PM EDT, September 5th, 2006

American Technology Research analyst Shaw Wu on Tuesday issued a report in which he said that not only does he believe that Apple is working on a music-playing cell phone, but it "will be a major player and competitor set to disrupt yet another industry." As a result, he bumped his revenue and EPS estimates for FY07 to US$22.2 billion and $2.60, respectively, and set a new target price of $91. His previous target price was $75.

Mr. Wu wrote: "The cell space is a tricky and competitive business, but an enormous opportunity for AAPL. We believe there will be plenty of skeptics again, but AAPL should not be discounted due to its strong brand name, loyal customer base, and obsession with quality. We have learned that the kinks have been worked out of the new phone and that it is set for production."

He added: "While we do not yet know the exact timing or 'go-to-market' strategy, we are confident that AAPL will time its launch opportunistically, and that the cell phones will be positioned to gain significant traction. We believe this new market could easily represent an incremental $2 billion annual revenue run-rate opportunity."

While the analyst previously expected Apple was planning a mid-2007 roll-out for the fabled "iPhone," with a 2008 or even 2009 release also likely, he now believes that the company has accelerated its efforts. "The technical hurdles are significant and competing with global powerhouses like Nokia, Motorola, Samsung, LG, and Sony-Ericsson is no simple task," he wrote. "However, we now have high conviction that calendar 2007 is very likely (potentially as early as 1H). With a history of revolutionizing the PC industry, the music industry, and the movie industry, we encourage investors to get aggressive in purchasing shares of AAPL prior to the potential revolution of the handset industry."

Mr. Wu didn't cite his sources, but he said that he believes the device is now close to going into production after a development cycle that exceeded 12 months. "We believe that Steve Jobs is finally satisfied with the end product AAPL engineers have produced in terms of quality and the right blend of cell phone and portable media player," he said.

The device's design "will be an iPod nano-like candy bar form factor and come in three colors (we are not certain of the exact colors but we suspect black, white, and platinum, similar to AAPL's current color scheme on iPods and Macs)," the analyst write. He also expects a "stealth launch," in which Apple announces the cell phone very close to its ship date, or possibly even files for FCC approval under an OEM manufacturer, "similar to Microsoft Zune," which went into FCC approval as a Toshiba device.

He added: "We believe the go-to-market strategy is likely the gating factor in AAPL shipping its cell phone imminently. It could participate the traditional way by partnering with carriers like Cingular, Sprint-Nextel, T-Mobile, and Verizon or it could also go with an MVNO (mobile virtual network operator) model where it would have tighter control over the user experience."

He thinks the new device could easily bring in $2 billion in annual revenue, "assuming around 10 million units at a $200 ASP (similar to its current iPod), but not including potential services and accessories revenue." However, his revenue and EPS increases for FY07 were modest: a $200 million revenue bump and another $0.15 in EPS. He was conservative in his estimates because he sees it as "an incremental new opportunity" that will ramp up as Apple uses its retail store chain to lure in cell phone customers.

At 1:44 PM EST on Tuesday, Apple's stock was selling for $70.31, up 2.82% for the day amid a broader Nasdaq rally.


If you are interested in Apple's stock, join our forum members in the Apple Finance Boards, a moderated forum for Apple Investors and people who are interested in Apple's financial dealings. For other stories regarding Apple's stock activity, visit our updated Apple Stock Watch Special Report.

Observer Comments

Show: Subjects Only | Full Comments
Close Name:SiloMunke Posts: 22 Joined: 05 Jul 2006
Subject: Link to your iTunes Folder on home Mac?

What would make this awesome is a link to stream your music off your home computer. All your music all the time when within the cell network's range.

Close Name:gopher Posts: 291 Joined: 28 Mar 2002
Subject: Sneeze! "Yes Virginia?"

Still waiting. I won't buy an Apple cell phone unless it is done right. A cell phone needs these features:

1. No monthly fees.
2. No expiration dates.
3. No credit checks.
4. Per call rate cheaper than payphones.
5. Cost no more than $50.
6. Compatible with all cell networks.
7. No roaming charges.

If that can be done, and designed to attach to the bottom of an existing iPod, I'd buy it in an instant.

Close Name:oliverreid Posts: 1 Joined: 05 Sep 2006
Subject: Apple phone: Apple should attack the oligopoly.

Actually Apple can grab share by being a pure competitor. Its the only business where the more you buy the higher the price (I.e. overage charges) . The big carriers can only get away with fixed monthy charges and punitive overages b/c they operate a tacit oligopoly. Smaller players tend to shelter under umbrella of this price model rather than take it on.
Apple should just charge for the phone and charge a per minute rate that goes doen, not up, the more minutes you use. No fixed contacts, no bundling: just pay for what you get. My guess is that like Virgin, they will offer a branded service that piggybacks the Sprint network.

Close Name:KitsuneStudios Posts: 2490 Joined: 25 Oct 2001
Subject:

I'm much easier to please. It simply has to be available for CDMA networks and have features/quality equal or better than the Motorola RAZR, which I plan on upgrading to in January.

Not holding my breath for one tho. Wouldn't mind an iPod bump soetime soon though.

Close Name:afpilot Posts: 2 Joined: 30 Jun 2003
Subject:

Quote
gopher wrote:
Still waiting. I won't buy an Apple cell phone unless it is done right. A cell phone needs these features:

1. No monthly fees.
2. No expiration dates.
3. No credit checks.
4. Per call rate cheaper than payphones.
5. Cost no more than $50.
6. Compatible with all cell networks.
7. No roaming charges.

If that can be done, and designed to attach to the bottom of an existing iPod, I'd buy it in an instant.


And I want a Brand new BMW for $9995....

Get real... I'll take an unlocked GSM phone from Apple for $399... I think just an OEM manufacturer of unlocked phones is the way to go. No need to mess around w/ being an MVNO or a contract w/ a carrier. Bluetooth Sync w/ iTunes. And Apple's famous touch on UI.

Close Name:gopher Posts: 291 Joined: 28 Mar 2002
Subject: I am real, the cell industry is unreal

Why would I ever need a cellphone if payphones are all over the place, and frequently better service than cellphones. Until the cell industry stops its lunacy more people will get in debt buying services they never really use, and have to buy replacement phones at costs of a year of service or more. Apple has an opportunity to make the cell industry stand up and listen like they did with the music industry.

Close Name:BradC -   TMO Staff Posts: 81 Joined: 29 Apr 2005
Subject:

Quote
Why would I ever need a cellphone if payphones are all over the place


Where do you live, Gopher? I live in northern CA and see payphones less and less. And, of course, payphones are completely useless if, for example, I'm at the store and need to call my wife and see if she wanted red onions or white ones. Or if I'm supposed to be following someone in my car and we get separated. Etc.

I do agree, though, that the cellular industry is screwy. I pay way more for my two cell phones than I should -- it's about twice as much as my residential phone, and I can't get rid of my residential line because the cell reception isn't as good inside the house as it is outside.

Eventually, though, I think we'll see a dramatic shift in the cellular business. Remember when you had to pay by the hour with AOL, Compuserve, etc., and then along came players who gave you 24/7 Internet access for a flat rate? People who used to literally pay hundreds of dollars were now suddenly paying just 20 bucks a month.

Something similar is likely to happen in cellular, especially with wireless Internet access eventually becoming ubiquitous and offering the ability to carry a WiFi device that basically does the same thing. Maybe Apple is the company that will shake things up. Or maybe not. At any rate, I doubt that they'll get into the cellular business with a plan that's the same as everyone else's. They'll do something different.

Close Name:Edison Carter Posts: 228 Joined: 10 Aug 2006
Subject: Payhones

Quote
gopher wrote:
Why would I ever need a cellphone if payphones are all over the place, and frequently better service than cellphones. Until the cell industry stops its lunacy more people will get in debt buying services they never really use, and have to buy replacement phones at costs of a year of service or more. Apple has an opportunity to make the cell industry stand up and listen like they did with the music industry.


I second Brad's observation pay phones are becoming less and less seen. I have come to really appreciate my cell phone, not only in emergencies, but for my business as well. And no I don't yack on the cell phone in the movie theatre or when it is unsafe to do so. As to costs, you can purchase prepaid cell phones, that is what I do with the iTunes Music Store for a similar reason.

I would like to see a combination cell phone and iPod.

Close Name:Rainy Day Posts: 607 Joined: 07 Jun 2005
Subject: No contract here

I have to agree that the pay phone is an endangered species. Very rare anymore here in western Oregon. But i don’t have much use for a cell phone, other than an occasional call, and for emergencies.

I inherited a cell phone and bought pre-paid cards for it from AT&T for $10/90 days. Then Cingular took over and thought they’d triple the price. I was willing to pay $40/year for occasional use, but not $120/year. Since federal law requires carriers to handle 911 traffic without charge, you don’t need to a plan with a carrier for emergency use. I carry a cell phone strictly for 911 access, but it costs me $0/year.

Now i would like a wireless portable device that i can receive eMail, and place/receive occasional VoIP calls. I won’t pay outrageous prices for something i only use occasionally, but if Apple does away with monthly contracts and offers a pay-as-you-go service, i’d be interested. I don’t mind buying a “phone” because i know it’ll be cheaper than any contract.

Close Name:vasic Posts: 279 Joined: 09 Aug 2005
Subject: Re: Sneeze! "Yes Virginia?"

Quote
gopher wrote:
Still waiting. I won't buy an Apple cell phone unless it is done right. A cell phone needs these features:

1. No monthly fees.
2. No expiration dates.
3. No credit checks.
4. Per call rate cheaper than payphones.
5. Cost no more than $50.
6. Compatible with all cell networks.
7. No roaming charges.

If that can be done, and designed to attach to the bottom of an existing iPod, I'd buy it in an instant.

This is technologically next to impossible (specifically, number 6.). Your phone is either CDMA or GSM (dominant technologies in the US). It cannot do both. Therefore, it's either Sprint/Verizon or Cingular/T-Mobile (to simplify; I know there are others out there).

Making an unlocked quad-band GSM phone that will work with any SIMM anywhere in the world will definitely sell. Perhaps not as much in the US, but world would just gobble it up. While in the US, we are at mercy of carriers with their annual (or bi-annual) contracts and subsidised phones, the rest of the world has the pre-paid option that actually makes sense. Buy a SIMM card (practically anywhere: newsstand, street vendors, supermarkets...), stick it in any phone and use it. You don't have to sell your identity to your carrier (and your government) like in the US.

Close Name:geoduck Posts: 1922 Joined: 30 Dec 2003
Subject: Re: Sneeze! "Yes Virginia?"

Quote
vasic wrote:
You don't have to sell your identity to your carrier (and your government) like in the US.

That is the primary reason I don't have a CP at the moment. I had convinced myself that it would be a good idea to get a couple of them for my wife and I and figured out a plan that wasn't too obnoxious. In the end, though neither T-Mobile nor I would budge on their having my SSN. I just would not give it to them and they would not go ahead without one.

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