Apple's New Revenue Sharing Agreement Impresses Analysts

Analysts are not just impressed by the faster, sleeker update to Apple Inc.'s (AAPL) iPhone, but the surprise change in its carrier revenue sharing agreement will drive cash flow quicker to the computer giant.

Citigroup Capital Markets analyst Richard Gardner is upgrading his price target for Apple stock from $248 to $287 over the news, which he estimates will increase free cash flow by $2-billion for 2009.

In a note to clients on Tuesday, RBC Capital Markets analyst Mike Abramsky said that by waiving its carrier revenue sharing agreement in place of subsidies, Apple will lose higher-margin service revenue, but may see carriers drive increased volumes through compelling pricing. According to Mr. Abramsky, Apple stands to get about $260 of gross profit without revenue sharing, down from $413 gross profit with the agreement in place.  

He said:

We estimate Apple needs to sell 60% more subsidized handsets vs. unsubsidized to offset the loss of service revenue, which we believe is more than achievable, given our prior estimate that $199 pricing can boost sales over 100%.

He maintained its "outperform" rating on Apple shares with a $220 price target.

Mr. Abramsky estimates about 700,000 iPhones will be shipped in the third quarter and about 2 million to 3 million units in the fourth quarter. He maintains his earlier forecast of 24 million iPhone shipments in 2009. In Canada, he forecasts 162,000 iPhones being sold after July 11, growing to 423,000 by 2009 and 651,000 by 2010.

Comments

[finance ninja:]

You may have a point, but I have this gut feeling Microsoft's Zune will become a real player with the iPod/wifi music sharing. Currently the iPhone is still so controling and you can't easily share music with one another. I was once big on getting it especially now with a cheaper 16gig 3G model, but instead I chose a cheaper more effective Blackjack by Samsung with cingular for cheaper with 8gig and I can do so much more since it runs Microsoft on it. I also get pissed off at snooty Apple sales people in bestbuys. I'm sorry Apple, as much as I love you, you still aren't king like PC's and Mr. Bill Gates. One thing I do agree with is the price of Apple's stock which will be rewarded with upgrading the iPhone and offering it basically to anyone who wants to sell it which = explosion of growth and cha-ching for Apple and shareholders. You can bet I'll be owning leap year options on AAPL. -fn

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2008 Jun 11 06:45 AM

[JW, PhD:]

Did you just bring up the Zune?? You do realize that the device is essentially dead tech, right? Some retailers have even stopped offering it in their stores. You might want to update your "gut" with some cold hard facts.

2008 Jun 11 07:02 AM

[aapl:]

finance ninja: what's your point? If you believe Zune is gonna be THE player, Apple is too expensive and I've you feel offended by Apple users who are satisfied with the products.

The ability for music sharing is not on the iPhone. (almost) Nobody asked for it. Things people asked for instead, are now beautiful integrated in the new iPhone.

If you're realy happy with your blackberry/windows machine why respond anyway on this topic.
I never post on Windows topics... Why should I?

btw I never met anyone who owns a Zune but I guess I'm blind ;-)

2008 Jun 11 07:16 AM

[digivision:]

the Zune is going to what???? LOL what do you smoke???
MS should kill it while they can

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2008 Jun 11 08:00 AM

[David Lentz:]

You people apparently don't recognize humor when you read it ...

Very funny, financeNinja

2008 Jun 11 09:23 AM

[samij:]

couple of notes:

1. $199 iphone will seriously hurt ipod sales.

2. q2 iphone sales were 1.7m, now estimation for q3 is 0.7m and q4 2-3m, total of 4.4m-5.4m. apple would have to sell 4.6m-5.6m during first fiscal quarter to achieve their goal of 10m iphones sold 2008, or 7.6m-8.6m to achieve their goal of market share of 1% of global cell phone sales. the US economy better start recovering soon!

2008 Jun 11 10:33 AM

[tom1234:]

are we there yet

2008 Jun 11 10:34 AM

[brewer:]

Apple will sell at least three times as many phones at this price. And it goes immediately to the bottom line, but last years sales are still adding to the bottom line as well.

2008 Jun 11 11:30 PM

[PK de C'ville:]

@samij

"1. $199 iphone will seriously hurt ipod sales."

Apple enjoys cannibalizing it's own products. Yum yum. It'd rather have the meal than someone else. Another way to put the iPod/iPhone relationship is:

Millions of potential iPod/touch sales will end up being iPhone sales instead.

You realize that it makes no difference whether someone has an iPod/touch or an iPhone. They're still on the iPhone OS X platform and that's the one which will lead to Apple's dominance of mobile phones just as Windows dominated PCs.

Lots of dough in platform dominance, yes?

2008 Jun 12 08:11 AM

[Jon T:]

That commentary from 'finance ninja' is about a year and a half past it sell by date.

Zune, a contender, for ANYTHING? Funny that. Really funny.

On topic, I think Apple has played a wise game by listening and adjusting their strategy and the product to fit the market needs and expectations. I believe ALL the predictions so far will be blown away.

2008 Jun 12 10:26 AM

[brewer:]

Everyone is running around like headless chicken saying that iPhone will canibalize iPod. No, it won't, that is really stupid. iPhone is a contract device. No one will buy that just to have an iPod, but they will buy it in order to have both the best iPod (touch) and phone/camera capabilities.

2008 Jun 16 01:22 AM