Apple: iPad Business Worth More Than Mac Notebooks

by: Trefis

We have recently revised our Apple (NASDAQ:AAPL) price estimate upward to $337 (vs. market price of $259) based in part on the stunning iPad performance in recent months. To the consternation of e-reader and tablet players like Amazon (NASDAQ:AMZN), Sony (NYSE:SNE) and HP (NYSE:HPQ), Apple registered strong sales of about 3 million units in the first quarter of 2010. We estimate that Apple’s iPad business accounts for 8% of the $337 Trefis price estimate for Apple’s stock, compared to around 6% for Macintosh Notebooks.

We expect that Apple will sell more iPads in 2010 (10 million) than Mac Notebooks (8.5 million) and that iPad will continue to outsell Mac Notebooks over our forecast period. Furthermore, profit margins on the iPad (40%+) are expected to remain higher than margins on Mac Notebooks (about 30%).

However, if demand for the iPad doesn’t grow as much as we have forecast, this could result in 2% downside to our estimate for Apple’s stock price.

iPad Scores over Mac on Sales and Margins

Apple sold almost as many iPads as Mac Notebooks in the past quarter. We expect Apple to sell 10 million iPads in 2010 and close to 30 million by the end of our forecast period.

We expect average pricing on the iPad to decline from $600 in 2010 to $440 over the Trefis forecast period, with margins also declining from 55% to 40%, implying profits of $330 per iPad in 2010 trending down to about $175.

In comparison, we expect Mac Notebook unit sales to trend from 8.5 million in 2010 (about 5.4% notebook market share) to 21 million (8.7% share) by the end of our forecast period. We expect average pricing and profit margins on Mac Notebooks to decline, with profit per Mac Notebook trending from about $375 in 2010 to $200 by the end of our forecast period.

Although Apple’s profitability per device is expected to remain higher for Mac Notebooks compared to iPads, our expectations for higher iPad sales volume lead to greater overall profits in that business.

Around 2% Downside from Lower iPad Growth

Although we’re bullish on the iPad, sustainable demand for it is yet to be proven the way it has been for the iPhone, iPod and Mac Notebooks. There could be downside to our estimates if iPad’s growth trajectory were not to materialize as we expect. For example, if iPad unit sales trend to 20 million by 2016, lower than the Trefis forecast of 30 million, this may lead to a 2% downside to the $337 Trefis price estimate for Apple’s stock.

Disclosure: No positions