Tuesday, January 30, 2007

Calls of Note Part 1

- Piper Jaffray notes Apple's iPhone (4GB for $499 and 8GB for $599) should be available in June 2007. Because this device represents a new market segment for Apple, its release raises several important questions ranging from the economics of the Cingular/Apple partnership to the iPhone's addressable market. Here's a selection of some of the questions answered by PJ:

1. What Are The Economics Between Apple And Cingular? While this information is mostly unavailable, the firm believes Cingular is not subsidizing the iPhone but may be reducing service plans to iPhone customers. Cingular has confirmed that there is no revenue sharing plan in place from added iTunes Store users because of the iPhone.

2. Will The iPhone Be Available Through Other Carriers? Eventually yes, however, there is a multi-year exclusive deal between Apple and Cingular iPhone. It is unclear whether this deal applies to this iPhone model only, or several future iPhone models.

3. How Quickly Will The Price Of The iPhone Decrease? Industry trends show that handset prices decrease quickly. At launch the Motorola RAZR retailed for about $500 and one year later the price had decreased 50% to $250 (note: prices listed do not include rebates or subsidies). And while wthe firm feels the price will decrease with time and with future models (as Apple has indicated), they don't feel the price decline curve of the RAZR is an accurate measurement. It is more likely thatthe iPhone will approach the $399 mark and future models will address more price-sensitive markets.

4. What Are The Gross Margins Of The iPhone? PJ believes that Apple timed its entrance into the handset market with precision. While iPod margins are decreasing, firm's analysis of Palm's Treo devices indicates about a 30% margin, which they also believe is an accurate estimation for the first iPhone models longer term, but likely the initial iPhone model has a greater than 30% gross margin.

5. What Is The Addressable Market For The iPhone? Near term: Cingular has 58m subscribers, of which the firm estimates about 30% (14m) own iPods and about 10% own phones >$300 (5.8m). Long term: according to IDC estimates, there were 201.4m wireless subscribers in the U.S. and 1.8b worldwide by the end of 2006.

Maintains Outperform and $124 tgt on AAPL.

Notablecalls: Not actionable but good to know category.

1 comment:

Evan Reiser said...

Interesting Feature Comparison between the iPhone OS and Windows Mobile 5

iPhone - Already an Outdated Technology????