Can Apple Sell 45m iPhones By End of 2009?

While most Wall Street types have come down from their aggressive targets for iPhone units, one analyst, Gene Munster at Piper Jaffray, is sticking to his guns. Munster is predicting that Apple (AAPL) will ship 45 million iPhone units in calendar 2009.

In a research note Monday, Munster said he realizes the 45 million iPhone target is aggressive, but he’s maintaining his estimate based on the following:

• Apple will introduce a 3G iPhone in the next three to six months with new features.
• Apple will launch a family of iPhones with two to three separate models by Jan. 2009. These will bet lower priced at $200 to $300.
• An international rollout that will double Apple’s market. The big rollout will be in China.

Apple has said it is comfortable with its goal of shipping 10 million iPhones. Where will those extra 35 million units come from?

Munster said he expects Apple to launch the iPhone in Japan this year. He then makes a bet that Apple will alter its exclusivity terms in China and ink a deal with China Mobile by mid-2009. China Mobile has more than 370 million subscribers.

Does it add up to 45 million iPhone units? Perhaps, but a lot of things have to go right.

Munster’s theory that lower priced iPhones will drive volume is a no brainer. Munster writes:

Just as the company slowly diversified the iPod lineup and entered lower price points with every new version of the iPod, in this way, an analysis of initial iPod growth can serve as an initial basis for iPhone forecasts. However, data from the first 3 quarters of iPhone sales indicates that the iPhone’s unit growth curve is significantly steeper than that of the iPod.

Here’s a look at Munster’s estimates of the iPhone ramp vs. iPod:

The rub: It’s unclear how quickly Apple (BTL posts, all resources, Apple Core blog) will roll out this family of iPhones. If there’s a delay or Apple doesn’t think it’s such a bright idea to drop average selling prices from $489 in 2007 to $314 by 2009 (Munster’s estimates) then this all-in-the-family effect may not play out as quickly.

International rollout will be critical, but China will put the iPhone over the top. Munster has big plans for international growth, but is clearly counting on a deal in China to make his iPhone targets reality. He writes:

We believe the continued international rollout of the iPhone will effectively double the addressable market every year for the next two years. The iPhone is currently available in 6 countries and it is offered exclusively through 6 carriers in those countries with a total subscriber base of 153m. With a total of 3.7m units sold through Dec-07, the iPhone’s penetration into this addressable market is about 3%. Apple has reiterated its goal to launch the iPhone in Asia in CY08, which we believe will be limited to Japan. Several other countries that may see iPhone launches in CY08 include Canada, Italy, Mexico, and Australia.

Couple that international rollout with lower prices and perhaps the units begin to flow quickly. However, China is everything and will require Apple to alter its model. Munster writes:

In China, however, the market dynamics complicate Apple’s business model of exclusivity and we believe the company will likely need to alter its terms in order to launch the iPhone with a Chinese carrier like China Mobile (over 370m subs) by mid-CY09. We have spoken with people close to China Mobile and our conversations lead us to believe that Chinese carriers are unlikely to sign a revenue sharing agreement with Apple. This is due in part because of the 70% market share enjoyed by China Mobile. The bottom line is that the mobile phone market is less competitive in China than it is in the US and Europe. As a result, it appears China Mobile is unwilling to pay the monthly revenue sharing of ~$15/month that we believe other exclusive iPhone carriers are currently paying Apple. That said, the number of unlocked iPhones in operation is a sign of international demand. The mobile market in China is an ideal market for the iPhone’s international expansion, especially with a 3G version. In time, we believe Apple will alter its strategy of signing exclusive revenue sharing agreements with its partners in Asia, which will enable the company to sell the iPhone in China by mid-CY09.

The rub: Munster’s is betting on Apple to alter its business model just for China. He is also betting that a deal in China can be completed in enough time to move the needle in calendar 2009. Apple COO Tim Cook has noted that the company isn’t wedded to anyone model, but how fast will this shift occur. Will Apple ditch revenue sharing to push iPhone through multiple carriers?

This chart tells the tale:

Will those stars line up for the iPhone?

Comments

[mrtaxx:]

Your column has an error. In 2009 they will sell 45M iPhones, it has nothing to do with the 10M iPhones sold in 2008. As the prior comment noted you did mostly a cut and paste job and you got an important fact wrong. Also as the prior commentor indicated I would like a job with seeking-alpha so I can cut and paste articles and make $$.

2008 Mar 31 11:21 AM

[drummerjoe:]

The 25% of the article that you wrote had an error (as mrtaxx said). How funny.

2008 Mar 31 11:47 AM

[bobthenoob:]

hello may name is regory from akscaban
i like to appli job as ediotor in you're company. i can copy/paste fester than your monkay.

2008 Mar 31 01:00 PM

[jescott418:]

My only question is not about Apple selling 45 million phones. But if that many people want AT&T. Apple would have a much easier time selling phones if they opened them up to every carrier.

2008 Mar 31 02:08 PM

[Brandon:]

I don't know what type of workload these guys have. They may not have the time to do much research. But I cut them some slack based on the fact these articles are linked to finance.yahoo.com under the category of blogs.

Having said that, the standards of a blog are going to be lower than a well-researched and edited article. In-other-words, maybe you should give them a break, albeit a little one.

2008 Mar 31 02:46 PM

[peter02l:]

There we go again. Someone comes out with an outrageous prediction for iPhone sales (I will be happy if Apple sells 15 million in 2009) and Dignan is all over it. We go up a buck when the news comes out and when Apple comes out and says they expect to sell half that, the stock gets hammered.

The fact is we don't know if and when, where, and with whom Apple will sign these contracts. We don't know, other than the features that are coming in June, about any new models or additional enhancements or pricing, etc. will be in store past the next three months.

How do we know this penetration percentage they use in the last chart will be uniform across markets?

2008 Mar 31 02:57 PM

[David Lentz:]

jescott418 -- if Apple were to open up iPhones to every carrier, what would be the carrier's incentive to give Apple ANY of the cellular revenue?

Let's think for just a minute about this. Assume that the amount Apple gets from AT&T is $10 per month of the cellular service plan revenue (I think that the vast majority of the guesstimates put it at a lot more than that). This means that if the average life of an iPhone is 24 months (and it had better last longer than the cellular contract!), the revenue from the carrier is $2400 on a device that sold for around $400.

That's the answer to your question. If Apple opens up the iPhone to any carrier, then they wind up losing a huge chunk of revenue. Maybe at some point, the desire to grow market share overrides the desire for profit, but I don't see that point coming any time soon, if ever.

As to whether or not there will be 45M people willing to sign with AT&T, I think that depends upon how attractive Apple makes the iPhone and how much AT&T decides to compete for cellular business -- would more people be willing to sign if the service contract was cheaper? If the iPhone cost less? How about if the iPhone had more hardware features (Bluetooth, GPS, video camera, yada yada yada)?. There is a lot that can be done to make the platform more attractive as the cost of technology declines.

I think that as more of the traffic moves to the internet (which the iPhone is doing great at, if Google's stats are to be believed), and given AT&T's desire to penetrate that market in a decisive manner, we might well see AT&T try to draw more customers in.

Plus, that 45M is not just AT&T. It represents all of the various carriers around the globe that have signed revenue sharing agreements with Apple. Looking at things from a global perspective, I think that 45M is a pretty easy target.

2008 Mar 31 03:05 PM

[tom1234:]

ok from your lips to God's ears

2008 Mar 31 06:00 PM

[Peter Lynch:]

And let's not forget the difference between XX million SOLD and XX million SHIPPED.

At least 20-25% of iphone sales are to people who unlock their iphones, which means that apple gets $0 from their revenue sharing agreements with carriers. Of course, any unlocked iphones also automatically void the warranty, which translates into some savings for Apple. But I would take the revenue sharing over warranty savings any day.

And also let's not forget that Apple had to slash iphone price by $200 within the first 3 months to maintain it original sales target.

45 million is far from a sure thing.

2008 Mar 31 11:37 PM

[jmmx:]

IMHO -
Apple will NOT lower the prices. 3G will be + $150 0ver equivalent Edge model. Price will be lowered by $150 rebate from participating carriers (ATT, etc.) paid for (at least in part) by Apple.

Try to keep the sheep in the fold, but if they want to roam - they will need to pay the price.

IMHO

2008 Apr 01 09:19 PM

[simonsays:]

Although iPhone had an initial successful boom in US and some countries, it will be difficult for iPhone to boost big in China for the reasons of business model, competition and customer acceptance.

please check more comments on simonsays.blogbus.com/

2008 Apr 10 03:55 AM