An UBS analyst said in a note to investors that the
upcoming low-cost iPhone will outsell the new flagship iOS smartphone next-year,
although it may not be as profitable for the company as its more expensive
brother. Interestingly, the device is expected to launch this quarter.
Analyzing Apple’s future, Steve Milunovich looked at the company’s various
mobile products including the iPhone, iPad and iPod, reiterating a “Buy” ratting
for Apple stock with a price target of $500.
However, Milunovich cut estimates for next year, saying that the iPad and
“iPhone M” may have a negative effect on Apple’s profits. Milunovich expects for
Apple’s fiscal year 2014 a $179.9 billion and $42.29 per share net profit, and a
gross margin of 36.6%, down from $185.1 billion and $43.36 per share.
Milunovich refers to the low-cost iPhone as the “iPhone M” – various reports
seem to believe that the phone will be sold as the iPhone 5C – while the
high-end seventh-generation iPhone is called iPhone 5S.
According to the analyst, the iPhone M will have tremendous success with the
public, selling anywhere from 92-99 million units in Apple’s fiscal year 2014 –
Apple’s new fiscal years start in October of each year.
iPhone M will account for 53% of sales next year, and they’ll make up for 3%
of iPhone sales this year – thus, the analyst is also suggesting the new
low-cost iPhone may be arriving before the September quarter ends, which is
Apple’s fourth quarter in fiscal year 2013.
However, the analyst notes that these are just estimates for the handset, and
it’s not yet clear how it will impact Apple’s business. Milunovich expected the
iPhone M to cost $379, but to only offer Apple a gross margin of around 32%
compared to the 55% gross margin of the iPhone 4/4S, which the iPhone M would
replace:
“Because the M has such a lower gross margin than the 4/4S, the M reduces
earnings in our model. iPhone gross profit declines by 4% or $1.6bn with the
iPhone 5/5S profit up $4.9bn and the 4/4S/M profit down $6.5bn. The net iPhone
impact is a reduction to F14E EPS of $1.16.”
He further explains that at 92 million iPhone M units sold, Apple’s profit
would be diminished, while at 99 million “the gross profit impact would be
neutral.”
Milunovich’s report also looks at iPad and iPod sales, with the analyst
concluding that growth is slowing for both devices when compared to the
iPhone.
The analyst says that the iPad growth will be lower than of the iPhone,
explaining that, surprisingly, the whole tablet market is growing slower than
expected. Even so, Apple is expected to sell 84 million iPad units next year,
and 74 million this year – the Street expects the company to sell 87 million
tablets next year.
However, the launch of new iPad models may affect the growth of the
tablet:
“With two new tablets anticipated over the next few quarters, perhaps the
iPad is in a lull and will jump to a higher unit plateau as seasonality proves
more important than saturation. Our view is that the iPad is being accepted
faster but likely will not be as important as the iPhone over time. This story
could play out in other new categories Apple proposes—a fairly fast benefit with
rapid acceptance but a shorter half-life of earnings impact.”
Milunovich sees Samsung and Lenovo as the main tablet rivals for Apple next
year.
Overall, the analyst says that the tablet market will increase to 235 million
(2014), 301 million (2014) and $367 million (2015).
View the original article here
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