Apple iPhone Hits Wal-Mart

Bloomberg confirmed last week that Walmart (WMT) would be selling two Apple (AAPL) iPhone models later this month. This suddenly opens up the middle and lower-middle class market to Apple.

People that don't have a Best Buy (BBY) near, or don't shop there, will now see the iPhones in Walmart stores and will want a piece of the action. Granted the economy is bad, but something tells me that other products will suffer more than the iPhone. One can expect overall retail sales to decline, including auto, apparel, electronics, home and garden etc., but considering that the iPhone is the hottest gadget out there, I expect it will continue to do well.

For those that think iPhone growth and adoption is primarily within high-income households, a recent comScore study, "All about iPhone" shows that 43% of iPhone owners earn in excess of $100,000 annually, however, the strongest growth is coming from those earning less than the median household income. iPhone adoption since June 2008 rose 48% among those earning between $25,000 and $50,000 per year and by 46 percent among those earning between $25,000 and $75,000. This growth is three times the growth in the $100,000+ demographic. Clearly, the lower price, the cool factor and the appeal of the fast 3G network has lured people of all income levels. I wouldn't be surprised if Apple's iPhone market share worldwide reaches 3% by this time next year. How, you ask?

Well, Apple is expected to sell 5-7 million handsets in the current quarter. In light of these numbers, they have launched an iPhone gift card to make the iPhone even more accessible. I believe that even in this weak economy, Apple will probably sell well over 7 million iPhones, specially considering Walmart is joining the fray. Worldwide, each quarter sees a little over 300 million handsets being sold.

Nokia (NOK), with a little over 38% of the market share, sells close to 115 million of those. Samsung is runner-up with approx 17% of the handsets in Q3 of 2008 according to Gartner, while Sony (SNE), Motorola (MOT) and LG (LGERF.PK), each sold roughly 25 million handsets. Each of these brands have been selling handsets for at least 10 years. Apple is a baby with only 18 months since its foray into mobile handsets. So it is not unfathomable to think that Apple could be selling 10 million handsets a quarter by this time next year. In fact in a recent study by Compete, the iPhone was the most widely researched mobile device on the internet during the week of Oct 26, 2008 with 1.6 million shoppers reflecting an interest. The second most researched device was the G1 with its Android platform with less than 300,000 shoppers. All the Top 5 mobile devices researched were smartphones according to this study, which demonstrates what I believe to be a long-term shift in trend for mobile devices. With smartphone adoption increasing rapidly, the iPhone stands to gain from this shift.

Where am I going with this? Well, I think Apple is a stock you MUST own at these levels. The stock closed at around $94 yesterday, which means it trades for a mere 10 times next year's earnings if you take out the $27 per share it has in cash. When the market recovers, and I promise you it will, this stock will be a double ... quick.

Full Disclosure: I own AAPL but my position can change anytime without notice. I have also been using smartphones for over 5 years, including the Palm Treo 600/650/700, Motorola Q9h, Blackberry 8700 and the Blackberry Bold. However, having owned the iPhone 3G now for 3 months, I can safely say that I cannot live without one.

Comments

[20smoney:]

Good article. Macro factors will keep the stock down temporarily, but like you said if and when this economy recovers, Apple will skyrocket higher. They will be among the brightest on the other end of the recession/depression.

I wouldn't mind seeing them pay some dividends while we wait tho :)

20smoney.com

2008 Dec 16 07:37 AM

[jenny:]

"something tells me that other products will suffer more than the iPhone."

Agreed. Apple has continually shown to be a company able to withstand macro factors to a certain degree.

Despite things like the iPod market being saturated and
Mac sales declining, I think it's still remarkable that Apple is even
able to get close to any of the selling estimate numbers. I believe
the iTouch does have a bright future and at this point its all about
upgrading for Apple consumers. Apple recognizes the slowdown and is
reacting fast ( ie: selling discounted phones at Wal-Mart and opening up an entirely new market on consumers). Demand might
be down but investors seem to still be feeling confident in Apple as
sentiment was recently bearish but is beginning to move up. They've
also been forecasted (www.predictwallstreet....) to
close up today and these forecasts have been beating the market by
about 65% lately.

I think iPhones will sell well at Wal-Mart. They may not be a group of consumers initially interested in a iPhone but they are consumers looking for a bargain--and that's how the phone is positioned.

2008 Dec 16 02:36 PM