Emerging Market Will Drive Average iPhone Pricing in 2013
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Apple’s (NASDAQ:AAPL) outlook is bright and driven in large part by the success of the iPhone. In looking at recent reports, we decided to compare our with some of those we found among sell side analysts. Among these, Piper Jaffray just released its updated outlook, and we note that while our revenue estimates for 2011 and 2012 are fairly similar, we are slightly more conservative when estimating 2013 numbers as shown in the above chart. [1] The difference primarily stems from the average iPhone pricing estimates. The iPhone is the most valuable business for Apple and accounts for about 54% of our $510 price estimate for Apple stock. Our price estimate is about 30% above the market price.
Emerging Market Impact on iPhones
Apple does not have much of a presence in emerging markets where prepaid penetration is high. Google (NASDAQ:GOOG) Android has slowly gained presence there while Nokia (NYSE:NOK) is still a potent player in emerging markets although it has lost some of its wind in recent years. Other low cost Asian rivals led by Samsung, LG, ZTE and Huawei have increased their presence in these emerging markets making it more price competitive and fragmented.
We discussed about the opportunity and risk to Apple from the introduction of a cheaper iPhone in our earlier note titled Emerging Markets iPhone Would Provide Upside to Apple’s $430 Value.
We believe that Apple will eventually introduce a low-priced iPhone or slash the price of older iPhone models (such as the iPhone 3GS) which will act as a low-cost iPhone for emerging markets. A low-cost iPhone could cater to the needs of those markets very well and help further boost iPhone sales. However it would down the average iPhone price. This is why we believe that Apple’s average iPhone price will decline to around $530 in 2013 compared to the $565 Piper Jaffray estimate.
See our complete analysis for Apple stock here
Notes:- Apple forecast to sell 143M iPhones, 68M iPads in 2013, AppleInsider, September 7th, 2011 [↩]