Sunday, October 11, 2009

Raising iPhone estimates

A week ago I shared a few details about my iPhone unit estimates and the GAAP vs. non-GAAP valuation implications. Today that post was featured by Philip Elmer-DeWitt's Apple 2.0 blog. Welcome to all visitors from there, and thanks for the plug PED!

This weekend I was tweaking that very conservative iPhone unit forecast, seeing if I should take into account the recent report by Gartner (2012 estimate of 71M iPhones) despite it's questionable soundness. So in the end I just decided to raise my forecast by about 10%. FY2010 and 2011 iPhone unit estimates go to 30M and 36M respectively (from 28M and 33M previously), simply because it feels as is someone is really getting scared.

My valuation targets that I had previewed last week are updated as follows:

Stock valuation: EPS(e) PPS(25x)
. ------------ ------------
Window 12mo starting GAAP n-GAAP GAAP n-GAAP
------ ------------- ---- ------ ---- ------
Trailing Jan-09 6.41 9.52 160 238
Fair value Jan-10 8.54 10.19 214 255
1-year target Oct-10 9.83 11.17 246 279

Stay tuned for last quarter's final estimates, revenue breakdown, full financials, and guidance prediction next week.


Anonymous said...

Hi, this is Asymmetric.

My Apple 2.0 comment was completely destroyed by the Apple 2.0 commenting widget. I used parentheses and less-than signs and it interpreted them as HTML tags thus cutting off a large part of my comment.

My point is that the *smartphone* market growth is well in excess of 10% and probably closer to 40%. If iPhone growth is 40% or less it will only maintain share which is now in the 14% (smartphones) range. I would consider that a desperately poor performance for an iconic product that breaks satisfaction records.

I also want to point out overall share of 2% and RIMM's growth of 80% to 100% over the past 2 years. There is plenty of room for growth and there is a comparable.

I model iPhone growth at 100% for 2 more years. I believe this is what Apple is targeting and has been meeting that target so far. It is sustainable given the market share and growth data available.

I also watched all external forecasts (IDC, Gartner, Canalys) over the period 2007 to 2009 and they have missed growth by 2x. Industry analysts have been far worse at predicting iPhone than sell-side analysts, and you know as well as I do how incompetent they are.


deagol said...

Thanks for your comment Asymmetric. It shows you clearly know what you're doing.

Because of that, I won't try to explain the risks any analyst runs when expecting >100% growth for a couple of years. I'm not saying it's impossible, but that it's an extremely bullish scenario in which everything goes flawless. I prefer to assume a few things might go wrong, and if they don't I end up pleasantly surprised. As things are forecasted further in the future, they should be further discounted for risk.

Nice discussion. Soon we'll know how iPhone is doing: if last quarter's units are 8-9 million, it'd be a sign you are right and I will have to "scramble" to raise my estimates. If they are 7-7.5 million, I'll have to stick to my scenario of growth slowing to "only" 50%, and later 20%. If they're under 7 million, well, that kind of growth will be really hard to justify for 2 years.

Thanks for sharing your thoughts, and keep them coming!

Anonymous said...

For your consideration: the penetration of smartphones in the US is 40 million out of 276 million subscribers (source: CTIA). More than 50% of the smart installed base in the US is Blackberry. That leaves at least 256 million US subscribers who *don't* have an iPhone and no more than 20 million that *do*--a 93% non-consuming base to grow into.

Granted that ATT distribution is limiting, but in two years, we might see a different scenario. Out of the US, the smartphone non-consumption numbers are astronomical.

For the record, my estimates for iPhones are 8 million this CQ3 and 10 million CQ4. These numbers are still well below RIM's corresponding totals. With additional assumptions for Macs and iPods, I get an EPS of 1.80.

Looking forward to your FQ4 numbers.