Broader distribution could double iPhone sales in 2010 – Morgan Stanley
Source: Morgan Stanley
One of the biggest drivers of Apple's (AAPL) growth — and the company's share price — over the next two years will be the expiration of the exclusivity deals Steve Jobs cut with carriers during the iPhone's first two years.
That's the conclusion of a surprisingly bullish report issued Friday by Morgan Stanley's Kathryn Huberty, long considered a leading Apple bear.
"We expect Apple to broaden iPhone carrier distribution over the next two years and believe this opportunity is under-appreciated by the investment community," she wrote. "This total opportunity is substantial — it adds up to an incremental 20.3M iPhone units and $3.76 in adjusted EPS, 100% and 41% of iPhone units and adjusted EPS respectively."
Her "case study" is France, where the iPhone's market share grew 136% after the government ended Apple's exclusive deal with Orange. She expects similar — if not quite as dramatic — increases as Apple, in addition to opening new markets in China and Korea, switches to multi-carrier agreements in its largest markets. (The U.K. has already gone multi-carrier.)
The U.S. is the biggest prize in this respect, but she doesn't expect Apple to cut a deal with Verizon before that carrier's so-called 4G rollout is complete, some time in 2011.
Huberty offers three scenarios for investors — bullish, base and bearish — represented in the chart above. Using her base scenario she expects Apple to sell 41.7 million iPhones in calendar year 2010. She has raised her revenue estimate for 2010 to $45.3 billion from $38.2 billion and her estimated EPS to $10.50 — 13% above the Street's consensus.
My wife and I left Verizon for iPhones and we don't regret it. Quality, coverage of the AT&T 3G network is great where we live. Phones are great, too. Easy to upgrade and extremely versatile. Definitely not just a gimmick or trendy phone. Verizon was also a good carrier, but they simply didn't have any good handsets at the time.
"Apple will run into challenges commanding market share" Which company is going to knock them off? The only competitor that has the talent is Google, but they have little experience working with hardware. All of the competitors are playing catch up and have resorted to copying the Iphone. If the touchscreen trend fades, Apple will be the company that dictates the change.
"Touch screens are a fad that will eventually be replaced by keyboard based phones." If consumers wanted keyboards and were willing to trade in all of the functionality of the iphone to type, why are 10 of millions of consumers projected to buy the iphone over the next 2 years.
Your projects are ridiculous. No other company in the handset business has the talent to compete with Apple at this point. Until one of the competitors comes up with an original concept that surpasses the Iphone, Apple will continue to steamroll.
I see PC vs Mac all over again. When open platform Android starting to become more and more popular and cheaper, don't think iPhone will be matter anymore.
You know, I can't say that IPhone will rollout anytime soon for the Verizon network. All of the previous publications released originally stated that exclusivity agreements were not expected to expire until sometime around 2012. What I will say is that I think that Apple could very well run into some challenges continuing their command in the market especially given that niche product likeness of the IPhone. While I agree as do most that the phone has helped changed the dynamics of the market and definitely fueled innovation, touchscreen phones in my opinion will be cyclically appealing and eventually consumers will move back to phones with tangible keyboards. The IPhone is now doubt intuitive, however, given the shift to heavy texting, unless Apple is able to refine their interface and improve the user experience when it comes to messaging and email, I don't think that the phone presents itself as a long lifer.
As for AT&T, the best thing that the carrier could do would be shed the exclusive agreements that have, from the perspective of many analyst diluted their brand. While AT&T scrambles to add additional capacity to support the demand for data by IPhone subscribers, the company will find itself spending more then it is worth to build out additional capacity especially considering that its time start preparing for 4th generation platforms. If I were a planner for AT&T, I would shift the focus from trying to add additional capacity to support IPhone needs to preliminary buildout on their next generation platform and doing whatever they can to move any users they can to their next platform and therefore take some of the crunch off the current network capacity. Doesn't make since to continue to add capacity to overlay it with LTE at rollout, but then, thats what I don't invest in AT&T. Seems to me they don't spend wisely, I mean after all, they did spend 1 billion dollars to grease Apple's pockets b subsiding the cost of IPhone. Apple should have cut them a break…
I've had Verizon, Sprint and AT&T. I do have an iPhone now, no problems at all after 1 year anywhere I've travelled. I had Sprint for many years, no problems. I had Verizon and their so called superior network – they let me out of my contract with no penalty when I complained due to the fact that their network is not that great, and they admitted it to me.
People!!!!!!
Stop complaining about service from AT&T. The problem would be no different whether the i-phone was with VZ, at&t or t-mobile. No carrier had the network capability or foresight to see exactly how big the i-phone was going to be. All the carriers are in the process up getting ready to upgrade their respective networks. I work for one of the Telco's and I know from what we have been testing that the new technology will make todays speeds a thing of the past. Get ready for some extreme speed from all the major players. Apple will make the right decision and go with who will most impact their bottom line.
There's always 2 sides to every argument. Don't trash-talk your carrier so much, for every dis-satisfied customer there is another is jst just as satisfied.
Love my iPhone here in ATL. Switched from Nextel after 8 years just because of iPhone. Have excellent service and read about complaints; don't have any. Have had Bellsouth at home for 10 years, since moving here. No problems; need to check to see if I own stock in them!
Verizon executives have announced plans to complete the 4G rollout by 2013 or 2014, which would one of the most aggressive in the world and unprecedented in the US market. Suggesting it could be done by 2011 is just utter ridiculousness. If Apple really wants to expand to Verizon once the initial AT&T deal runs out (presumably) next summer, they are going to develop a CDMA iPhone. It will cost them some economies of scale, but their hardware will still be more uniform than Blackberries or even Palms. A future iPhone that does not need to rely on 2G and 3G networks as a fallback is still half a decade away.
If the iphone goes to any other network other than AT&T I will be the first to switch over. I do not care if I have penalty for switching over. AT&T is by far the worse network, I live in a major city and my calls get dropped all the time. Please Apple go to verizon asap.
To the first comment made, Apple will most likely not come out with a Verizon version on their current CDMA network, but Verizon is upgrading to a 4g technology known as LTE (Long Term Evolution) It is GSM based and will support SIM cards. The other carries to support this is T-Mobile, AT&T. Sprint will support WiMax.
Also 4g is extremely fast. Obviously, like all carriers, they will run into obvious issues and it will take more than a year to roll out mainstream as Verizon and all the other carriers have said.
Also one of the reason Verizon is known as the stronger carrier is because their customers aren't using Iphones on their network. The iphone users really use the network in ways which weren't used a few years ago. Verizon on the other hand doesn't really have a that issue. Blackberry definitely competes, but the Iphone really bogs down the network.
Besides the fact the T-Mobile is the smaller network. Where they have coverage, it's very good. There 3g network is also very good. They also will roll out with LTE which again is the upgrade from GSM; or the evolution of GSM.
I don't see the phone coming to Verizon. All the networks that have the iPhone are GSM. Verizon is CDMA. I'm doubt Apple will reengineer the iPhone to have a CDMA radio in it.
I have no idea why people bash AT&T and the iPhone services it provides. I have been with AT&T since the first generation iPhone and have upgraded with each new version and there is no comparison in the smartphone market. Additionally, I have never had dropped calls or poor quality. I also use my phone for email and remote managing my clients servers, routers, firewalls, etc. and the speed is blazing. Even if the iPhone is offered on other carriers at some point, I will be staying with AT&T becuase the speed of the network and quality of calls are better than any other, and I have used every other carrier at some point over the last 10 years.
Hells Bells, a glacier moves with more speed than either ATT or VZ in 3G/GS or, the over hyped 4G….it WILL be about 4-5 years MORE before significant 4G comes to fruition. Must be all the EXPENSES carriers incur, paying for Congressional RE-election campaigns.
How do we know we hate AT&T.I had it a long time ago, when it was called cingular. It sucked then. I got it again three years ago, I had it for five days and dropped more calls in one day then I have ever dropped with verizon or sprint or Alltel. I took it back after five days and got my money back. The fact is AT&T Wireless has always sucked. it sucked as Bellsouth, Cingular, and it still does. I think AT&T Wireless is going to fail when they are no longer the only ones you have the iPhone.
Many customes are simply switching to ATT due to a product! Little thought goes into the network behind the product. What good is an I-phone with all the great features it offers if they can't be used? If you do not get the service you expect you are paying the same as if you had it everywhere. I will not go with an I-phone just to have the "trendy" handset. I would rather have a Reliable network that I can USE.!
"One reason the Verizon network is considered stronger is because Verizon simply does not allow device manufacturers to offer a lot of solutions and because using those other smart phone is simply difficult people just don't use many services on the Verizon network except perhaps email.
So to say the Verizon network is better is misleading. Once a truly easy to use smart phone is offered there and users can use it like they can the iPhone, even the
Verizon network will come under pressure."
stronger yes. verizon uses a separate data network it doesn't share the same network like att does with data and voice. on top of that verizon offers 4-5Xs the 3g coverage in square miles. don't believe me? then look at atts site for 3g coverage map then look at verizon's. and you really cant blame your lack of common sense on the fact that verizons phones are too difficult to use. if you look around these phones "blackberry and windows" are sold by every cellphone network in the U.S.
would i love to see the iphone on verizon? -yes
if it doesn't happen will i switch to att? -not gonna happen
One of the reasons I prefer Verizon's network is the greater coverage area. Compare AT&T with Verizon on an overlay map and there is, well, no comparison.
I live in Mid-Missouri where AT&T has coverage in Columbia and Jefferson City and that's it. Verizon, OTOH, offers 3G coverage to a huge portion of the state, including some very rural areas. Not so with AT&T.
AT&T 3G may be faster where you can get it (debatable) but I'll take Verizon's much greater service coverage area any day.
One reason the Verizon network is considered stronger is because Verizon simply does not allow device manufacturers to offer a lot of solutions and because using those other smart phone is simply difficult people just don't use many services on the Verizon network except perhaps email.
So to say the Verizon network is better is misleading. Once a truly easy to use smart phone is offered there and users can use it like they can the iPhone, even the
Verizon network will come under pressure.
I have a iPhone 3G. Left my carrier Verizon after 14 years to go to AT&T to get one. Loved it and the service for the first 6 months.
Now, I have to hard-boot the phone daily to get it work as a phone due to the congestion
and upgrades to the 3G network here in Denver. I'm close to halfway through this 2 year deal. If the price doesn't come down and the network doesn't improve soon, I may not be with AT&T for anymore two year deals. I need a phone, not a trendy brick!
Cliff – actually that is not a fair comparision as one generation video game system to the next usually has a substainal difference.
edge to 3G had some decent improvements but 3G to 3GS was similar to their iPod improvements. Adding copy and paste, a compass, video recording is not a major upgrade by any stretch. Seeing how the jailbroken edge can do most of this functionality it is forced and people wise up. Apple will need to offer some serious upgrades in the next generation as the hardware is getting stale to the gadget crowd.
Now this "report" is yet more speculation and really not rocket science. You see with RIM selling the CURVE on all carriers how it's been #1 selling mobile device for the bulk of the year. Is Apple willing to give up some control and agree to Verizon's concessions? How low they the margin per iPhone slide as at&t will not be so keen to sub 300-400 of the cost?
So while yes older model iPhones can keep lowering the price as components get cheaper, stock is cleared by then anyone who wants an iPhone has one.
If they want to drive growth, get carrier data prices lower. It's the single thing holding back adoption at this point.
I think Apple has done a great job with their phone. They started out way after all the other cell phone manufacturers. So for those that wine and cry b/c they just got copy and paste, realize this is only their third phone. The other manufacturers have been doing this alot longer.
To Brian, complaining about the "forced upgrade", would make two points:
1: That's no different than most any tech product (i.e. video game systems with better graphics/features, computers with new hardware/software, etc.). They all have the mindset of "why start out selling the best we can do, when we can start off with a base model and then sell every step up in between that and the top of the line?" Sad, but true.
2: I started off with a 1st-Gen iPhone, which I happily used for over a year, then sold on Craig's List for $250 to upgrade to the iPhone 3G (which only cost $199 at the time, meaning upgrading cost me nothing out of pocket). And I am in the process of doing the same thing with the 3G to upgrade to the 3GS. Gazelle.com, which CNN itself reported on a few weeks back, will pay $171 for it, so worst case scenario, I'll have upgraded my iPhone twice and still come out at least $20 to the good.
All that being said, I think the "forced upgrade" argument doesn't hold too much water when it's very easy to upgrade and switch hardware, for no money out of pocket.
Just to add a bit of color to why Hubert might want to raise her estimates. She has not suddenly become a bull, more likely she does not want to look the fool. If we look at Apple TTM in the Non-GAAP, Apple has actually earned 9.23 EPS on 42.279B in Revenue. Hubert's 2010 number estimates 7% growth. The reality, the Iphone is the growth engine of Apple. If we assume 8M unit this quarter at $600 per unit that is 4.8B in revenue. The deferral of revenue has colored all the analysis. It should be obvious to folks that follow Apple that the Iphone is a runaway success. The 41M Iphone number would probably point to much higher then 45B in revenue as the MAC business continues to do well and the Ipod /Itunes business is not going away overnight. 2010 will also include launch of new business which may bring further growth.
Just incase some of you haven't realized, the consumer electronics companies don't create a one-size-fits-all product. Its not for everyone. If you don't own it, how can you complain about it?
oh, gatorallin, if you have been a long time VZW customer, how do you know you hate AT&T?
I bought the first one, and will never buy another. The treadmill scheme to force upgrades is insulting. You want MMS? Upgrade! You want voice dial? Upgrade. Features that should have been in the phone to start with, and it is capable of. Jailbreak the phone and move to the right network and it does. It's extortion. They even sold the phone partially on the premise of being upgradable. Bug fixes and copy/paste aren't upgrades, they are saving face.
The China iPhone market is still a question mark. It's being said that the cost of ownership of an iPhone is far too high for a Chinese user and that even 1% penetration of the China Unicom user base is unlikely.
I don't have a clue since I've heard many opinions on this topic. I'm really surprised that nobody seems to be able to get a clear picture on Chinese iPhone sales.
I am a long time Verizon customer and will get the iPhone as soon as they start selling it. I hate AT&T and know iPhone has lost many sales for this reason. My Blackberry STORM is fine for now (but wish I had the aps in the iPhone). Its the network silly…no its the phone (for me it is both). 2011 seems too far away…please hurry!!
Phillip,
"She has raised her revenue estimate for 2010 to $45.3 billion from $38.2 billion and her estimated EPS to $10.50 — 13% above the Street's consensus."
Are these estimates made under the new GAAP ruling which allows Apple to report iPhone revenues and earnings quarterly vs over 8 qtrs?
ex ped: I think so, yes. She mentions the new accounting rules as a "potential catalyst" and then describes her 2010 estimate as "adjusted GAAP EPS."
The UK has announced that the iPhone will be available from 3 different carriers, but you won't be able to buy the phone until the end of this year, beginning of the next.
I would assume this might actually reduce demand for this coming quarter as some percentage of people who wanted an iPhone enough to switch would now stay with their carriers till the iPhone arrives.
I have not yet entered the smart phone market so I can't comment on iPhone vs. Blackberries or other devices. However, I am probably in a unique situation, in that I have AT&T for my business phone, and Verizon for my personal phone. I can tell you that where I travel, hands down Verizon is better. My drive to the office is about 16 miles. If I'm on the AT&T phone, there are 4 different places where the call will drop. The Verizon keeps the call all the way through. Even in cities where you would expect everyone to have complete coverage, AT&T drops calls. I once had a customer tell me to hang up and call him on a land line. I called him back on my Verizon phone, and everything was fine. Just my experience, but traveling in the Northeast, Verizon is worlds ahead of AT&T as far as call (only) coverage. 3G, I have no idea.