Apple Updates: Why Apple Still Bothers With iPod Refreshes; Apple In Iran

Apple (NASDAQ:AAPL) has had an interesting few days, rolling out its mobile payment service Apple Pay in the U.K., while refreshing its iPod lineup. Separately, the Wall Street Journal reported that the company is keen on entering the long-isolated Iranian market, after the country reached a nuclear deal with world powers earlier this week. Here’s a brief analysis of how these recent developments could impact Apple stock and its broader strategy.

Trefis has a $144 price estimate for Apple, which is about 15% ahead of the current market price. We are modelling iPhone shipments of about 220 million units for CY2015.

See our complete analysis for Apple here

Apple Eyes Iran As Sanctions Are Removed, Impact Likely To Be Low

Apple is reportedly looking to make inroads into the long-isolated Iranian market, after the U.S. and five world powers entered into an agreement with the country to remove economic sanctions, in return for a reduction in its nuclear capabilities. The Wall Street Journal reports that Apple has been in touch with potential Iranian distributors, which indicates that the company could pursue a franchise-based business model, thereby limiting its investments and risks in this geopolitically sensitive market. While the sanctions could take several months to unwind, Iran should provide modest growth prospects for Apple. The country has a large and relatively young population (80 million residents, 60% of whom are under 30) that already has an affinity towards Western goods. Internet penetration is also reasonable, at about 53%, according to government data. ^[1] However, Iran’s per capital GDP is still quite low ($5300/annum vs. $7600 in China, according to the World Bank) meaning that driving large volumes won’t be easy for Apple. If Apple is able to move 2 million units (an optimistic estimate) of the iPhone annually in Iran beginning in CY’16, this would result in an upside of under 1% for Apple stock, by our estimates.

Why Apple Still Bothers With Its iPod Touch Refreshes

Apple launched a new version of its iPod Touch this week. The device will feature upgraded cameras and imaging software and will sport the Apple A8 processor, which is also used on the iPhone 6. Although the updates appear curious, given that iPod sales have largely been cannibalized by the higher-margin iPhone, the refresh still makes sense for a couple of reasons. Firstly, the iPod Touch serves as a stepping stone of sorts into Apple’s ecosystem, and its $199 entry price point (for the 16GB model) makes is quite accessible for kids and teens, who could eventually upgrade to Apple’s pricier offerings. Secondly, Apple is possibly looking to turn the iPod Touch into a niche platform focused on gaming and photography. The updated device – with its quality cameras and speedy processor – could appeal to customers in the market for point-and-shoot cameras and portable gaming devices. Additionally, it could help Apple bring in some new subscribers for the recently launched Apple Music service.

Apple Pay In The U.K: Strong Vendor Penetration, But Banks Slow to Join

Apple launched Apple Pay in the U.K., making it the first country outside the U.S. to get the mobile payment service. Apple Pay will be accepted at 250,000 locations in the U.K., roughly the same number at the time of the U.S. launch. This implies that vendor penetration will actually be much higher, since the U.K. has fewer retailer locations compared to the U.S. Some big names that will accept the service include McDonald’s, Starbucks and Transport for London. However, only seven U.K. banks currently support Apple Pay, and some of the largest banks aren’t on board yet. HSBC and Lloyds Bank are expected to support the service shortly, while Barclays hasn’t provided a definitive timeframe for launch. As we’ve noted before, Apple Pay is unlikely to contribute meaningfully to Apple’s top line in the near term, but it should provide some upside in terms of margins and long-term growth prospects (related: A Look At Apple Pay And Its Valuation Impact On Apple).

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research

1. Deal Rekindles Business Interest in Iran, WSJ, July 2015 [↩]