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Electronics Manufacturing – M528

iPredict

A Market Value and Forecast for the Apple iPhone


iPhone hand
Ever since Steve Jobs unveiled the Apple Iphone in early January, anticipation from consumers and media alike, has been huge. The Iphone, Apple's first move into the mobile phone handset market, is set to launch by the end of June 2007, and has sleek looks plus a whole host of innovative touches. Using patented Apple technology, and set to incorporate many of Apples previous features from iPods, and iMacs alike, the iPhone will be more than just a mobile communication device. However, with other corporate phone companies offering similar features at a fraction of the price, what market is the iPhone aimed at, and how successful will the product become?

According to Apple, very. In fact, Apple announced a sales target of 10 million unit sales in 2008 alone. At this time, the iPhone will be available in the U.S., Europe, and Asia. This on the face of it seems realistic, as 10 million is only 1% of the current global handset market.

Apple believes they can sell the phone on its looks, sex appeal, and innovative touches. This is focused mainly on the user-interface, with the iPhone being the first handset to incorporate a complete touch screen. Labeled as revolutionary in design and software without compromising on ease of use, Apple has dubbed this the first ‘useable’ touch screen mobile. Another selling point focuses on the in built, highly successful iPod, which comes as one of the iPhones many features. There is no doubt that it is also a highly fashionable device, but at $499 for the base package, will this be enough to shift them into the millions? According to Van Baker, an analyst at Gartner, “The answer is the extent to which consumers, and the technology industry, have come to believe in Apple’s ability to combine stunning industrial design with ease of use.”

Apple has further support in these estimates too. Charlie Wolf, an analyst of Needham suggests the iPhone is worth about $20 a share to Apple, and by 2016, 135 million units will be sold. His analysis was as follows:

"Initial sales of the iPhone are likely to be modest because of its high price. But its price is likely to fall at a 20% annual rate in line with the decline in component costs and rising carrier subsidies. The decline in price should accelerate demand as the iPhone invades the sweet spot of the mobile phone market. With carrier subsidies, the iPhone should sell for around US$75 in the final year of our forecast. We’re forecasting sales of 135 million iPhones in 2016, equivalent to a 7% market share. The iPhone adds $20 net to our Apple target price".

iPhone hand
Wolf's future predictions


Again, to buy into these estimates one would have to conceive, nothing going wrong, and indeed, everything going right. Still, based on these estimates and Apples 860 million shares outstanding this gives the iPhone a valuation in excess of US$17 billion. (Savitz, E, January 2007, Tech Trader Daily).

Not all are so confident however.

Many analysts are concerned that Apple has been somewhat optimistic in their estimates. In fact, many are suggesting that the Iphone will not appeal to a wide enough range of consumers, and a likely unit sales result in 2008 will be more around 2 or 3 million. Although the initial 10 million estimates seem logical, for such a high end device, analysts are concerned that it may be over-aggressive.

iPhone hand
The first concern lies in the price; a base of US$499 is a full $100 over any other Cingular phone currently available in the US. For that money, one might be expecting amazing features, and although high end, they are not revolutionary. Many other devices offer most if not all the features provided here. It is also not that lightweight either, weighing in at a hefty 135g, compared with most handsets at around 80-100g. Other downers include the lack of 3G, dubbed ‘the mobile broadband’, and the compromise is that the Iphone relies solely on wi-fi and Edge technology. Some are concerned. Golvin, from analyst firm Forrester suggested; “The absence of 3G, of mobile broadband, is a glaring omission. By promising a mobile internet experience and relying on Edge and wi-fi, (Apple) is falling short.”

Despite these arguments against however, Apple are confident, and this was reflected in their share price. Following its iPhone survey, Morgan Stanley is forecasting Apple to earn $3.62 per share during the 2007 calendar year, up $0.43 from its previous estimates of $3.18. The firm also bumped revenue and gross margin estimates by $561,000 and 1.9 percent, respectively, to $25.71 million and 30.8 percent. In retrospect, iPod unit forecasts were reduced by the aforementioned 1.5 million figures to roughly 45 million units, while the firm made no change to its 2007 Mac unit estimates of 6.297 million. (Mclean, P, March 2007, AppleInsider).

So where does this leave us. Despite conflicting opinions on the effect on the mobile industry, nearly all are in agreement that the iPhone will be a success of some magnitude. I believe that this success may not be as immediate as Apple predicts, and indeed that other manufacturers such as Nokia and Motorola need not panic just yet. To begin with, I believe the iPhone will appeal to the technological ‘gadget-loving’ individual, the highly fashionable individual, and the money-no-object individual. This leaves a large amount of the market untouched.

As Wolf suggests, the price of the iPhone is somewhat high, and this may bottleneck sales early on until a price reduction has been made. Once this is the case however, who knows how far the iPhone can go, 135 million in 2016 perhaps? With the price in the ‘sweetspot’ for the general public, the iPhone may well be the most desirable handset out there, not only on design and features, but on price too. One might consider the addition of various upgrades to the phone, new models coming out, and increases in technology. The iPod sets the trend in this way. However, only when this is the case, do I truly believe we’ll see the phenomenal sales optimistically predicted by Apple. Judging on what I have read, I’m on the fence, predicting in 2008, the iPhone will sell around 5 million units.



References

[1] Anon [Sunday Times] (2007)/ Apple rings in new era for mobiles Retrieved April 2007, from http://business.timesonline.co.uk/tol/business/article1292594.ece
[2] Barford, J (2007). The Apple iPhone, Beautiful, but niche. Retrieved April, 2007, from http://www.isuppli.com/marketwatch/default.asp?id=316
[3] Corner, S (2007) Nokia's N95 'iPhone killer' hits the market to high demand Retrieved April 2007, from http://www.itwire.com.au/content/view/11395/127/
[4] Cronin, J (2007). Can Apple's iPhone upset the mobile cart? Retrieved April 2007, from http://news.bbc.co.uk/1/hi/business/6248603.stm
[5] Marsal, K (2007) iPhone cost expected to decline 20 percent annually Retrieved April 2007, from http://www.appleinsider.com/articles/07/01/29/iphone_cost_expected_to_decline_20_percent_annually.html
[6] Mclean, P (2007) iPhone interest said to be larger than market anticipates Retrieved April 2007, from http://www.appleinsider.com/articles/07/03/01/iphone_interest_said_to_be_larger_than_market_anticipates.html
[7] Savitz, E (2007) Apple: Needham Boosts Price Target To $135 On iPhone Sales; Sees 135 Million iPhones Sold In 2016 Retrieved April 2007, from http://blogs.barrons.com/techtraderdaily/2007/01/29/apple-needham-boosts-price-target-to-135-on-iphone-sales-sees-135-million-iphones-sold-in-2016/