What Will the Next Gen iPhone Mean for Apple's Stock Price?

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Includes: AAPL, BBRY, GOOG, NOK
by: Trefis

Images of Apple’s (NASDAQ:AAPL) potential next generation iPhone have been featured on Gizmodo. Consumers, along with Apple competitors Google (NASDAQ:GOOG), Research in Motion (RIMM) and Nokia (NYSE:NOK), have gotten a sneak peek of what lays ahead for Apple’s product road map.

Based on the hardware details provided by Gizmodo, the new iPhone will feature a few key improvements to the iPhone 3GS that could help drive further iPhone sales, slow declines in iPhone pricing and lead to a long-term boost in Apple’ stock. We estimate that the iPhone constitutes nearly 50% of our price estimate for Apple’s stock.

We summarize the top new features of the next generation iPhone below and explain how there could be as much as a 10% boost to our $294 Trefis price estimate for Apple’s stock if device leads to higher iPhone market share and higher average prices than we forecast.

New iPhone Has Advanced Features Compared to iPhone 3GS

According to Gizmodo’s review, the new iPhone features the following improvements over the iPhone 3GS:

  1. A front-facing video chat camera
  2. A higher resolution display
  3. Larger battery
  4. An improved back camera with a flash

5% Upside from Higher Market Share

The iPhone’s new features could win over new customers to Apple, both amongst consumers and businesses. For example, a front-facing video chat camera could be extremely useful for individuals using Skype and for businesses that want to use mobile video chat. The higher resolution display (estimated to be 960×640), is superior to the 800×480, 3.7-inch screen featured on Google’s Nexus One smartphone and that is likely to appeal to gamers.

iPhone’s market share in the global mobile phone market has increased from 0.3% in 2007 to 2% in 2009, and we expect it to increase to 11% by the end of Trefis forecast period.

Although we forecast that the iPhone market share will increase to around 11%, there could be an upside of $15 (5%) to the $294 Trefis Price estimate for Apple’s stock if the next generation iPhone’s superior features could help it increase its market share to 12% by the end of Trefis forecast period.

5% Upside from Slower iPhone Pricing Declines

The new iPhone can also help slow the iPhone pricing declines that we forecast. We expect average iPhone pricing to decline from about $590 in 2009 to $370 by the end of Trefis forecast period as competitors increasingly match the iPhone’s features.

We believe that improved demand for the next generation iPhone can slow the iPhone pricing declines that we expect and help Apple to maintain greater pricing power while prices on competing smartphones fall.

There could be an upside of $15 (5%) to the $294 Trefis Price estimate for Apple’s stock if average iPhone pricing were to decline to around $420 by the end of Trefis forecast period instead of the $370 we currently forecast.

You can modify our forecasts for iPhone market share and iPhone pricing above to see the impact of different forecast scenarios on Apple’s stock.

For additional analysis and forecasts, here is our complete model for Apple’s stock.

Disclosure: No positions