Following reports that Foxconn Electronics has secured a contract to manufacture a cellphone/media player for Apple, Bear Stearns analysts Andy Neff, Bill Hand and Ted Chung sent a note to clients today on the potential impact of an Apple iPhone -- key excerpts, emphasis added:
AAPL iPhone could add an incremental $0.70 in EPS and $6bn in revs for CY07... Extrapolating the news reported by Commercial Times in Taiwan (of Hon Hai shipping 12 million AAPL iPhones in the first half of 2007).... Our estimates include 30% potential cannibalization of total (current) iPod unit sales by iPhone introduction. Here are some of our assumptions (which are subject to change in terms of timing and magnitude):
· Given Hon Hai’s expectation of 12 million unit shipments during the 1H07, we assumed total unit shipment of 29 million units for 2007 (which would imply a market share of around 3% of the total mobile phone market). Other trade reports have noted lower shipments for the iPhone -- i.e., around 20 million units, but we could size the numbers either way.
· We assumed iPhone ASP of $300 (without carrier subsidies), which is below PALM Treo ASP of $489 and RIMM Blackberry ASP of $349 but seems reasonable given the market for phones with music. ASPs could end up higher/lower depending on features.
· We assumed 15% operating margin, which is above AAPL’s operating margin of 14%. Moreover, our margin assumption appears reasonable since PALM Treo’s gross margin is 35%-40% while AAPL’s operating expenses as percentage of sales is about 15%.
· By way of comparison, our current earnings model for AAPL shows $3.07 (pre-options) on $24.5 bn in revenues for CY07. As we mentioned, we have not reflected the iPhone in our current model.