Yesterday, Apple’s (NASDAQ:AAPL) stock increased by around 2.8% with NASDAQ actually declining by 0.4%. In the past week its shares are up nearly 10% and its almost 20% for the past month. We believe that much of what’s driving this is speculation that has picked up once again about the new iPhone as various brokerage firms have released estimates of iPhone specifications and unit sales. Yesterday’s jump might have been due to a report by JPMorgan (NYSE:JPM) that Apple could unveil two different versions of iPhone next month.  The report suggests that the iPhone 5 will be a world phone with support for both GSM and CDMA technology, and a revamped iPhone 4 will be a low cost phone specifically targeted for emerging markets. We believe that irrespective of the specifications, the upcoming iPhone poses a significant threat to Research in Motion (NASDAQ:RIMM), Nokia (NYSE:NOK) and Samsung in the smartphone market.
The iPhone is the most valuable product for Apple and accounts for more than 50% of our $510 price estimate for Apple stock. Our price estimate for Apple stock is about 25% above market price.
Emerging markets provide huge potential for Apple
Apple has not been able to penetrate the emerging markets in a meaningful way, which explains its rather low global mobile phone market share of less than 5%. This could explain some of the euphoria surrounding the upcoming announcements.
In our earlier note titled Adding More China to iPhone Sales Gets Apple to $430, we discussed that the deal with China Telecom could represent a $9 billion opportunity for Apple. This could help Apple expand its addressable market and increase its market share at a rapid rate.
China is the largest mobile subscriber market in the world and China Telecom has about 106 million subscribers. Out of these, about 13 to 15 million subscribers are considered high-end subscribers.
We estimate that worldwide Apple will be able to sell more than 106 million iPhones in 2012. If we assume that all of China Telecom’s high-end subscribers end up buying an iPhone, Apple could sell around 120 million iPhones in 2012 much more than what we estimate. This means that Apple’s worldwide market share could increase at a faster rate in 2012 to reach around 7% instead of 6% that we estimate. This scenario alone adds around 5% upside to our price estimate for Apple stock.Notes:
- Apple: iPhone 5 Accompanied By Spiffed-Up ‘iPhone 4 Plus,’ Says JP Morgan, Barron’s, September 19th, 2011 [↩]