Apple (NASDAQ:AAPL) primarily competes with Research in Motion (RIMM), Motorola (MOT), and Nokia (NYSE:NOK) in the mobile phone market. According to a recent GfK survey, 59% of Apple iPhone users plan to stay with Apple for their next phone, while only 25% of smartphone users overall plan to stay loyal to their respective phones. 
iPhone’s reported customer loyalty levels were the highest in the survey, while Research in Motion was second at 35% (for its Blackberry OS), Google (NASDAQ:GOOG) Android was third at 28%, Nokia was fourth at 24% and Microsoft (NASDAQ:MSFT) was fifth at 21%. Loyalty remains an important factor for a company looking to gain share in the highly competitive mobile phone market. We believe strong customer stickiness and a brand image synonymous with innovation has enabled Apple to grab mobile phone market share despite heightened competitive pressure.
Our price estimate for Apple is $418, roughly 25% ahead of the current market price. We estimate that iPhone operations constitute the majority of the company’s stock value (54%).
Higher iPhone Sales on Tap
As iPhone operations generate the majority of Apple’s stock value, high iPhone customer loyalty could trigger substantial upside. Apple sold a record 14 million iPhones in the quarter ending September 2010. We estimate that iPhone’s share in the global mobile phone market breached 3% in 2010, up from 2% in 2009, and could hit 12% by the end of our forecast period.
Higher customer loyalty not only means that Apple will benefit from existing user upgrades to new iPhone models, but also increases the likelihood that non-iPhone users will replace their existing smartphones with Apple’s product. The trend is encouraging for Apple, as the company’s stock value remains highly sensitive to iPhone’s market share. We estimate nearly 15% upside to the $418 Trefis price estimate for Apple’s stock if the iPhone can attain a 15% market share by the end of our forecast period.
Apple’s Ability to Innovate Sustains Customer Loyalty
Apple released the iPhone 4 in mid-2010, featuring a variety of hardware and software upgrades over the prior version. New hardware included a front facing camera feature that enables video calling, a high resolution handset display, and higher processor speeds. Software enhancements included iOS version 4, which featured support for multitasking, and added security features for businesses (all introduced while maintaining lower battery consumption than prior versions). Apple’s ability to satisfy new consumer demands through innovation should sustain iPhone unit sales growth as well as relatively high customer loyalty.
To see the impact of iPhone market share on Apple’s stock value, drag the trend line in the modifiable chart above.
Disclosure: No position