Tuesday, May 08, 2007, 01:25 pm
Caris sees iPhone sales topping 25 million per year by '09Citing expectations for unusual sequential growth in iPod sales this quarter, Caris & Company on Tuesday increased its price target on shares of Apple, adding that it expects the company to be shipping 25 million iPhones per year by fiscal 2009.
"We are increasing our price objective on Apple from $110 to $115 as our channel checks suggest that iPod shipments (usually down in the June quarter) will grow quarter-over-quarter," analyst Shebly Seyrafi wrote in a research report. "Our checks are on the HDD-side, which is a data point for the video iPod (about a third or a fourth of iPod shipments) and suggest better than seasonal growth in the 1.8-inch drive market (dominated by the iPod)."
Instead of forecasting iPod units to decline quarterly from 10.5 million units during the first quarter of the year to 10.0 million units in the second quarter, the analyst now estimates that units will increase about 13 percent to 11.9 million units. He added in his report that he has heard ample speculation that Apple will replace the 1.8-inch HDDs used in the video iPod with NAND flash later this year, at least for capacities below a certain level.
For iPhone, Seyrafi is modeling Apple to sell around 17 million for fiscal 2008 (12-month period ending Sept. '08) and 25 million in fiscal 2009 (ending Sept. '09) -- well ahead of Apple's own stated estimate of 10 million units in fiscal 2008. Seyrafi even went as far as to predict that there is room for "ample upside" to his already aggressive iPhone targets.
"It is true that smart phones account for less than 10 percent of the 1 billion+ unit worldwide cell phone market, but we believe that Apple can catalyze smartphone penetration into the cell phone market while it gains share in the smartphone market," he explained. "Pessimists (such as Microsoft's Steve Ballmer) say that Apple's high price ($499/$599) will preclude widespread adoption, but we believe that after Apple 'skims' higher-priced customers it will drastically lower prices to around $300."
While acknowledging that competitive offerings -- such as Samsung's Upstage sold through Sprint and Motorola's Q -- offer 3G services, Seyrafi said Apple is still likely to emerge as the "big winner" due to the high publicity surrounding the iPhone and the halo effect from the iPod.
"Plus, we expect a follow-on version with 3G," he added.
In his report Tuesday, the Caris analyst also said he believes Apple can beat its gross margin guidance for the current quarter, which was modeled down from 35 percent last quarter to 32 percent for the quarter ending June.
"Remember that the decline was guided because of a less favorable component cost environment, higher display costs, and lower prices in the educational segment," he wrote. "However, our pricing research on NAND flash suggests that pricing here has been more aggressive over the past few weeks."
Seyrafi maintained his "Above Average" rating on shares of the Cupertino-based company, but increased his per-share earnings estimate for fiscal years 2007, 2008, 2009 from $3.43, $3.54 ,$4.21 to $3.52, $3.73,$4.42.
"Risks to our price objective include slower than anticipated acceptance of the forthcoming iPhone product, increased competition from Dell in PCs, and cannibalization of the iPod by the iPhone," he wrote.
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