The 3 Most Important Product Segments for Apple

Apple (NASDAQ:AAPL) is one of the most recognized companies in the world and known for its innovative products like the iPhone, Mac and iPad. Apple’s iPhone competes with Research in Motion (NASDAQ:RIMM), Motorola Mobility (NYSE:MMI), and Nokia (NYSE:NOK) in the mobile phone market while it’s Mac line of products compete with Dell (NASDAQ:DELL) and HP (NYSE:HPQ) in the PC market. Here we will analyze the these three most important products segment for Apple in terms of value that they contribute to our $420 price estimate for Apple stock. Our price estimate stands about 25% above market price.

Apple has a history of introducing successful products to the market, despite the fact that most of its products are sold at a premium to competitors. Apple’s strategy of dominating the mobile computing market (PCs, tablets, netbooks) seems to be working as Apple successfully launched the iPad to tap the growing demand for mobile devices, which is taking share from other vendors’ notebooks sales. Apple already has substantial market share in the high end of the notebook with its Mac line of products.

The 3 Most Important Product Segments for Apple

1) iPhone – 53% of the company’s stock value

Although iPhone’s share in the mobile phone market is still at around 3%, it’s value to Apple comes by selling iPhones at a premium to its competitors. Apple sells iPhones at a high average pricing of around $600 and high gross margins of around 50%. See the top forecasts for iPhone division.

2) Macintosh – 17%

Macintosh division not only consists of notebooks and desktops that Apple sells, but also the software and peripheral hardware associated with Mac. The software includes the Mac operating system, iWork (to organize software, spreadsheets and presentations), MobileMe (to keep email, contacts, and calender-related data in sync with the Mac, iPhone, and iPod) to name a few. Peripherals are the accessories associated with the Mac, which includes keyboard, wireless mouse, etc. See the top forecasts for Macintosh division.

3) iPad – 7%

Apple launched iPad in April 2010 and it recently launched iPad 2. The iPad 2 got off to a great start during the first weekend of its launch, selling an estimated 400,000 to 500,000 units. ^[1] Apple holds a substantial lead in the tablet market over competitors like Research in Motion, Motorola Mobility, Samsung, Dell and LG. Although we expect a faster iPad unit sales growth, the low contribution to our estimate for Apple stock is due to the fact that iPad pricing and margins are on the lower end. See the top forecasts for iPad division.

1. Estimations based on Piper Jaffray survey, March 13th 2011 [↩]