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Wednesday, November 15, 2006, 10:00 am PT (01:00 pm ET)

iPhone could add 22% to Apple's earnings for 2007

Apple Computer's upcoming iPhone handset could potentially generate an incremental 70 cents in per share earnings and $6 billion in revenue for the company during the 2007 calendar year, one Wall Street analyst says.

"Extrapolating the news reported by Commercial Times in Taiwan (of Hon Hai shipping 12 million Apple iPhones in the first half of 2007), we ran some numbers to get a sense of the incremental impact," Bear Stearns analyst Andy Neff wrote in a research note to clients Wednesday morning.

The analyst, who had been modeling the Cupertino, Calif.-based iPod maker to earn $3.07 per share on $24.5 billion in revenue during 2007, said sales of the new device could add an additional $0.70 in earnings-per-share and $6 billion in revenue.

"Our estimates include 30 percent potential cannibalization of total (current) iPod unit sales by iPhone introduction," he wrote.

Given Hon Hai’s (Foxconn's) expectation of shipping 12 million iPhones during the first half of the year, Neff assumed total unit shipments could run as high as 29 million for the entire calendar year when the higher sell-through back-to-school and holiday quarters were factored into the mix.

In calculating the device's revenue potential, the analyst assumed Apple would price the phone around $300 without wireless carrier subsidies, which would fall below PALM's Treo with an average selling price (ASP) of $489 and RIMM's Blackberry with an ASP of $349.

"ASPs could end up higher/lower depending on features," he noted.

Neff also assumed an operating margin of 15 percent, slightly above the company's current operating margin of 14 percent. "Our margin assumption appears reasonable since PALM Treo’s gross margin is 35 percent - 40 percent while Apple's operating expenses as percentage of sales is about 15 percent," he wrote.

Sales of 29 million iPhones during the 2007 calendar year would represent an approximate 3 percent share of the overall mobile phone market, the analyst said.