iCloud: Fortifying Apple’s Moat in Mobile

Apple (NASDAQ:AAPL) unveiled its new iCloud service yesterday at its Developers Conference (WWDC). ^[1] We provided a preliminary glimpse of what we expected from the iCloud announcement yesterday morning and highlighted how we thought it would benefit Apple by strengthening its halo effect on other more valuable products like the iPhone, Mac and iPad (see iCloud Should Strengthen Halo Effect of Apple Platform). Here we look at how these efforts could help consolidate Apple’s position in the mobile device market. Mobile phone operating system players like Google (NASDAQ:GOOG), Nokia (NYSE:NOK) and Research in Motion (NASDAQ:RIMM) continue to face pressure from Apple’s OS, which has established itself as a leader in the mobile OS market. We currently have a $430 price estimate for Apple stock, which is about 25-30% above market price.

iCloud integrates mobile platform for media consumption…

We believe iCloud has the potential to become a new model of media consumption that could influence demand for Apple devices. The service will allow users to store digital files such as photos, music and videos in the cloud (remote computers), and access them through smartphones, PCs or tablets.

Apple also introduced iTunes Match service, which will avoid the need for the user to upload his/her library of songs to the cloud. iTunes Match will scan the user’s library of music with the iTunes’ database, ultimately giving user the ability to listen to a song anywhere from any Apple device.

…and strengthens the iPhone’s offering

Apple has consistently gained market share in the mobile phone market over the past few years, and we expect this trend to continue. However, the recently lowered outlook from Nokia, ^[2] and RIM’s stock decline from $58 at beginning 2011 to around $38 currently suggest that competitors are struggling in the mobile phone market while Apple is gaining ground.

The iCloud is another step in fortifying the iPhone’s position as one of the premier smartphones and a market leader in mobile OS. In a scenario where the iPhone gains at a faster rate than we expect and the iPhone’s market share increases to 20% of all mobile phones sold by the end of the Trefis forecast period, rather than increasing to 13% as we currently forecast, this implies around 30% upside to our current forecast for Apple’s stock.

See our complete analysis for Apple

1. Apple Introduces iCloud, June 6th 2011 [↩]
2. Nokia lowers Devices & Services second quarter 2011 outlook and updates full year 2011 outlook, May 31 2011 [↩]