October 2, 2009
Broader Carrier Distribution
Could Double Market Share
$200.00 to $210.00
Investment conclusion: We view broader iPhone
distribution as the most significant near-term catalyst for
iPhone units, EPS, and share price. This opportunity is
substantial – it equates to a potential 20.3M unit and
$3.76 adj. EPS opportunity or 100%/41% of the LTM
units/EPS. Timing remains uncertain but we believe a
near term (2010) opportunity exists in Europe, China &
Korea with a longer-term (2011) opportunity in the US.
What's new: In the top six iPhone markets that are still
exclusive, we believe that Apple’s market share could
rise to 10%, on average, in a multiple carrier distribution
model from 4% today. These six markets represented
almost 70% percent of iPhone shipments in C2Q09.
In CY10, we see upside of 7.3M iPhone units as Apple
shifts to multiple carriers in key European markets &
enters China + Korea. We include 50%/100% of this
potential upside in our CY10 base/bull case estimates to
account for timing uncertainty. In CY11, we see upside
of an additional 13.0M units and we factor in 25%/50%
of this potential upside in our base/bull case forecasts.
France Case Study: French regulatory officials forced
a multiple carrier model in Apr ‘09, driving two key
changes in this market. First, Apple’s handset market
share increased from 5.5% in C1Q09 to 9.7% in C2Q09.
Second, even with stable iPhone ASPs/subsidies,
carriers began to compete on monthly iPhone service
plan pricing, potentially increasing demand further.
Where we differ: We continue to believe the market
underestimates iPhone unit upside. We raise our CY10
revenue and adjusted EPS estimates to $45.3B/$10.50
from $38.2B/$10.00 as we now expect 41.7M iPhone
shipments in CY10 up from 38.2M previously. Our
CY10 EPS forecast is 13% above consensus.
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