Is Apple More Dependent on Mobile Phones Than Motorola?

Nov. 10, 2010 7:14 AM ETAAPL, GOOG4 Comments
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Despite Apple’s (NASDAQ:AAPL) array of popular products from iPads and iTunes to the App Store, we believe that Apple’s iPhone accounts for 50% of its stock’s value. On the other hand, Motorola (NASDAQ:MOT) is a well known mobile phone company, but its mobile business only contributes 30% to its value by our estimates. So is Apple’s stock more dependent on mobile phones than Motorola’s, and if so why?

The short answer is yes and it boils down to the iPhone’s more successful penetration of the smartphone market, which has led to higher gross margins and market share gains. Motorola’s slow adoption of smartphones and lack of other major handset launches has led to slipping market share and lower gross margins.

The silver lining is that for a gradual one percentage point increase in market share for Motorola by 2016 equates to a 12% jump in Motorola’s price estimate from our current forecast of $8.20. Apple is far less sensitive as a one percentage move translates to a 4.5% change from our current Apple price estimate of $400.

Smartphones and Market Share

Apple’s iPhone helped drive the smartphone revolution along with competitors RIM (NASDAQ:RIMM), Nokia (NASDAQ:NOK) and more recently Google (NASDAQ:GOOG) Android devices enabling Apple to grow its mobile phone market share to just under 4%. We expect Apple to continue to grow its market share to 13% by 2016 driven by increased demand for smartphones.

Motorola has failed to launch a popular handset since its Razor and has been slow to catch up in the smartphone market leading to lower average mobile phone prices and 2% market share of the global mobile market. However, given its smaller market capitalization of $19 billion versus Apple’s $296 billion, an increase in market share from a popular handset launch will lead to a much larger impact on its stock value.

We forecast that a gradual one percentage point increase in market share by 2016 would increase Motorola’s value by 12%. See the above chart.

Apple carries higher gross margins of around 57% currently vs. Motorola’s 29% and combined with its larger market cap, we expect that a one percentage point change in market share would only impact the stock by 4.5%.

So while it seems that Apple may be more dependent on mobile phones than Motorola, Motorola shareholders stand to gain twice as much in share value from similar moves in market share.

Disclosure: No positions

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Led by MIT engineers and Wall Street analysts, helps you understand how a company's products, that you touch, read, or hear about everyday, impact its stock price. Surprisingly, the founders of Trefis discovered that along with most other people they just did not understand even the seemingly familiar companies around them: Apple, Google, Coca Cola, Walmart, GE, Ford, Gap, and others. This might include you though you may have invested money in these companies, or may have been working with one of them for years as an employee, or have consulted with them as an expert for a long time. Disagree? Consider these questions: •What % of Apple's stock price is iPhones? (Q: Is it 5%, 25%, or 50%?) •What % of Dell's stock price is Dell Notebooks? •If Bing took half the market share from Google Search, what % upside could there be for Microsoft’s stock? On Trefis you will get answers to questions like above. You can play with assumptions, or try scenarios, as-well-as ask questions to other users and experts. The platform uses extensive data to show in a single snapshot what drives the value of a company's business. Trefis makes the same content, data, and tools that are currently available only to professional investors today, accessible to everyone. Importantly, it makes the extensive data/tools easy to use and understand, allowing investors to leverage the platform in their decision making much more efficiently than anything else available. Trefis is currently used by hundreds of thousands of investors, company employees, and business professionals.

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