Morgan Stanley’s ‘bull case’ for Apple: 80 million iPhones, $500 per share

  • Posted: 07 November 2010 04:16 PM #46

    Gregg Thurman - 07 November 2010 07:36 PM

    There seems to be a lot of agreement on this subject.  What it comes down to is the law of diminishing returns.  Look at what happened to Dell when they followed that strategy.

    DawnTreader - 06 November 2010 08:39 PM

    Even if demand existed for products at lower price points the costs of acquiring manufacturing capacity and securing components might make the move economically undesirable.

    Gregg:

    A good point. In my view Dell chased the low-end market to generate revenue to cover a wide payables versus receivables gap. In other words I think Dell need to chase revenue of any kind or have to deal with a multibillion dollar imbalance between the two balance sheet items. It really impacted margins and it’s a strategy that was required to to issues of Dell’s own making.

    That said, entering the low-end market for the sake of revenue alone is not a winning strategy. Apple has the cash resources and the margins in its selected markets and does not need to play that perilous game.

         
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    Posted: 07 November 2010 05:43 PM #47

    DawnTreader - 07 November 2010 08:16 PM

    That said, entering the low-end market for the sake of revenue alone is not a winning strategy. Apple has the cash resources and the margins in its selected markets and does not need to play that perilous game.

    Exactly, and it’s foolish to suggest the best company in America diverge from its winning strategy. Apple is successful because it makes elegant, appealing products and OS’s that people will pay a premium for. Those who raced to the bottom on margins, Dell, HP, Lenovo, how are they doing?

    Michael Dell said you can’t make money selling computers in retail, just look at Gateway. Now Apple stores are the most profitable retail business per square-ft in America. I’ll take the Jobs model over the Dell model, theeeenks.

    “25% of something big is better than 100% of nothing.”—Eddie Felson, The Hustler.

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  • Posted: 08 November 2010 09:35 AM #48

    JDSoCal - 07 November 2010 09:43 PM
    DawnTreader - 07 November 2010 08:16 PM

    That said, entering the low-end market for the sake of revenue alone is not a winning strategy. Apple has the cash resources and the margins in its selected markets and does not need to play that perilous game.

    Exactly, and it’s foolish to suggest the best company in America diverge from its winning strategy. Apple is successful because it makes elegant, appealing products and OS’s that people will pay a premium for. Those who raced to the bottom on margins, Dell, HP, Lenovo, how are they doing?

    Michael Dell said you can’t make money selling computers in retail, just look at Gateway. Now Apple stores are the most profitable retail business per square-ft in America. I’ll take the Jobs model over the Dell model, theeeenks.

    The Gateway stores were placed in suburban strip malls and were first “showrooms” at which a consumer placed an order but didn’t go home with a PC. Imagine that. Go shopping, but don’t go home with a product. Both companies at one point had innovated manufacturing or distribution, but neither innovated products in a way that differentiated core uses or functionality from that of the competition. As competitors become more efficient in response, there was no way to protect price and margin.

         
  • Posted: 08 November 2010 09:40 PM #49

    DawnTreader - 07 November 2010 04:44 AM
    jeffi - 07 November 2010 04:33 AM
    mbeauch - 07 November 2010 01:55 AM

    How many iphones have been sold in the US to date? 25 mil or so in 3 1/2 years would be my guess. I think 5-6 mil a year for VZ is probably accurate.  :apple:

    IMO… That’s rear view logic. The smartphone sector is growing at almost 100% YOY. Using old sales numbers will lead you in the wrong direction.

    In other words… You’re way too low.

    One must remove from the iPhone sales equation any AT&T iPhone customers that would switch to Verizon. The question is the number of net iPhone sales Verizon brings to the table not the total number of iPhones Verizon might sell.

    DT, Why must one “...remove from the iPhone sales equation any AT&T iPhone customers that would switch to Verizon.” If I switch from AT&T to Verizon Apple gets another sale. As long as I purchase a new iphone when I switch carriers Apple benefits. Alternatively, if I remain with AT&T Apple will not get an incremental sale. Right?

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  • Posted: 08 November 2010 10:12 PM #50

    mbeauch - 07 November 2010 02:27 PM
    jeffi - 07 November 2010 04:33 AM
    mbeauch - 07 November 2010 01:55 AM

    How many iphones have been sold in the US to date? 25 mil or so in 3 1/2 years would be my guess. I think 5-6 mil a year for VZ is probably accurate.  :apple:

    IMO… That’s rear view logic. The smartphone sector is growing at almost 100% YOY. Using old sales numbers will lead you in the wrong direction.

    In other words… You’re way too low.


    jeffi, The grouping of the iphone with other smartphones does a disservice to the iphone. I for one do not fret over market share (Apple has 100% of its market, :-D ). Apple is growing its audience and expanding its points of sales in the US and Internationally. If you do not use old sales numbers, you do not have any points for reference to project forward, in other words, just throwing darts. Personally I could care less about VZ/US and more about China.

    Mark, your projecting sales from a static point in time when the market for smartphones was smaller. The smartphone market (iphones or the entire market in aggregate) is much, much, larger today than during the average of the sum from the 3.5 year time frame during 2007- 2010. Additionally, the market is still growing, and the growth rate appears to be accelerating somewhere toward the higher end of 70- 100% YOY. Therefore, your projections cannot be correct unless the market suddenly stops growing and flatlines or declines. That’s just not in the cards.

    On the other hand, I assume that most of the stock analysts make projections in this manner, which is why their forward earnings and sales are, and always have been too low.

    Mark, do you really think after the first year that only 6 or 7% of Verizon’s customers will have iphones? What about defections from AT&T, Sprint, DT, etc.? Verizon could pick up 2- 4 million in defections alone, maybe more. I think Verizon’s iphone sales will be at least double your estimate.

    Your right that international sales will move the needle more than Verizon, but Verizon’s numbers will top it off the total nicely.

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    Posted: 09 November 2010 10:59 AM #51

    adamthompson3232 - 09 November 2010 02:30 PM

    This gets to 12.3M iPhone 4s per quarter assuming 135K per day (the midpoint of the rates quoted below). Add in another 2M or so of the 3GS and you get to 14.3M iPhones per quarter. Is FoxConn the only iPhone manufacturer?


    Foxconn Makes 140,000 iPhone 4 per Day

    As of 4:00 PM ET 11/8/10
    A top executive of Foxconn Technology Group in charge of the production and sale of iPhone revealed when receiving an interview on November 8, 2010 that the company’s plants in Shenzhen and Zhengzhou are busy making iPhone 4 with a daily shipment of 130,000 to 140,000.
    The top executive points out that the production line of iPhone is running on full load, since Apple Inc. (Nasdaq: AAPL) places orders at about 20 million a time. He believes that Apple intends to cause supply shortage in the Chinese market to boost the sales volume of the smart phone.
    The latest report of IDC shows that the world’s mobile phone shipment reached 340.5 million in the third quarter, rising 14.6% from a year earlier and including 14.1 million shipped by Apple, which jumped 90.5%. Thus, Apple became the fourth largest mobile phone maker around the world with a market share of 4.1%, surpassing Sony Ericsson and Research In Motion Limited (RIM; Nasdaq: RIMM).
    Earlier, Apple released the financial report for the fourth fiscal quarter of the 2010 fiscal year. The robust performance of iPhone and iPad boosted its profits by 70% to USD 4.31 billion and operating revenues by 67% to USD 20.34 billion in the period.

    Foxconn is building new factory and they have a temporary line in place,  so I would think production will continue to increase through the quarter but Tim Cook mentioned at the CC

    I feel great about our ability to move the supply and the sales up from an 8 million kind of number to over 14 million. But it’s clear, last quarter that wasn’t enough. And we are obviously working on that, but it will take some time to increase further.

    Also Pegatron is rumored to be a manufacture but that was for the CDMA version of the Iphone

    Pegatron will also start shipping a CDMA version of the iPhone 4 to Apple in the fourth quarter and is currently using its plants in Shanghai, China to produce the products, the sources noted.

         
  • Posted: 09 November 2010 11:00 PM #52

    The top 10 toys for Christmas 2010, according to the report are:

    1) iPhone 4 (14%)
    2) iPod touch (13%)
    3) iPad (12%)
    4) Kinect for Xbox (6%)
    5) Zhu Zhu Pet Hamsters / Kung Zhu Hamsters (5%)
    6) Flip Video Camera (4%)
    7) Toy Story 3 Jet Pack Buzz Lightyear (4%)
    8) PlayStation Move (4%)
    9) LEGO Harry Potter Years 1-4 Video Game (3%)
    10) Barbie Video Girl (3%)

    http://www.telegraph.co.uk/news/8084305/Children-want-gadgets-not-toys-for-Christmas.html

    Note that Apple products take spots 1, 2 and 3.

    Holiday Gift Wish List- Adults

    1. Peace/Happiness
    2. Notebook/Laptop
    3. Apple iPad
    4. Clothes
    5. eReader
    6. Car/Motorcycle
    7. Family Together
    8. Good Health
    9. Video Game System
    10. Money

    http://www.macdailynews.com/index.php/weblog/comments/cea_spending_on_electronics_gifts_to_reach_an_all-time_high_this_holiday_ap/

    Note that Apple products participate in items 2, 3, 5 and 9. One could possibly even be excused for contending that they participate in item 1, as well.

    Holiday CE Gift Wish List- Adults

    1. Notebook/Laptop
    2. iPad
    3. eReader
    4. iPod/iPod Touch
    5. Video Game System
    6. Digital Camera
    7. Big Screen TV
    8. TV (unspecified)
    9. Computer (unspecified)
    10. Desktop PC

    http://www.macdailynews.com/index.php/weblog/comments/cea_spending_on_electronics_gifts_to_reach_an_all-time_high_this_holiday_ap

    Note that Apple products participate in items 1, 2, 3, 4, 5, 9 & 10.

    It’s going to be a banner Christmas for Apple.

         
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    Posted: 10 November 2010 01:47 PM #53

    NatasRevol - 04 November 2010 11:01 PM

    I think the discussion is missing the how of the sales numbers, while covering the how of the stock price thoroughly.

    Here’s my suggestion for how Apple sells 100M iPhones in calendar 2011.

    1. Release Verizon iPhone 4 - 5M/quarter
    2. Release iPhone 5 - 10M/quarter
    3. Adjust the price models - 10+M/quarter:
      Apple has always had a good-better-best approach, and now they can do it since the 3Gs runs iOS 4 decently.
      iPhone 3Gs - $49 (with contract discounts all the way to $0, to compete with the huge lowend/dumbphone market)
      iPhone 4 - $99
      iPhone 5 - $199/$299

    Total: 25M/quarter = 100M/year.

    Hmmm…

    http://dealnews.com/Refurbished-Apple-i-Phone-3-G-8-GB-for-29-free-shipping/402189.html,eref=9to5mac