Apple's Future in the Mobile Phone Market

by: Barak Paztal November 04, 2008 | about stocks: AAPL    

Barak Paztal

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Apple (AAPL) released its 3th quarter report a week ago. It was another great quarter for Apple: the company that introduced the iPhone in 2007 reported that it became world’s third-largest mobile phone supplier. The main goal of this article is to try to predict what is expected of Apple in the long run in the mobile phone market.

Apple reported revenues of $4.6B on 6.9M hand sets (667USD per unit). Nokia reported revenues of $12.7B on 118M hand sets (107 USD per unit).

For every iPhone that Apple sells today, Nokia needs to sell 6.23 units to match in terms of revenues. The balance point is therefore 118M divided by 6.23, which is 18.94M iPhones that need to be sold per quarter to match the balance. This will require Apple to grow 200% in volume.

In a January 22 post, I estimated that in 2008 or 2009, Apple would launch a new iPhone nano handset that will be priced lower. This will attract many users that are currently alarmed by the size of the iPhone and also its high price. This handset can easily become the leading model for Apple. I assume that this model will produce a lower revenue per unit for Apple but will enable the company to gain more market share.

Is it possible for Apple to sell 30M phones per quarter in 2009 or 2010? It does not look unrealistic now. 30M phones in an average price per phone of 500 USD (25% lower than today) can lead to 15B USD in revenues. This would be enough for Apple to do something that 3 years ago was considered impossible – become the global mobile phone leader (in terms of revenues). In terms of profitability, Apple will be much more profitable due to high margins per handset.

Disclosure: Author holds a long position in AAPL

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This article has 4 comments:

  •  
    Nov 04 07:38 AM
    Not sure what the point of your exercise is - - why does it matter what it takes for Apple to match Nokia in sales?

    You don't have to be number one to return a ton of value to your shareholders. I think Apple has already proven to be a major player in the smart phone market. It looks like they'll continue to steal share from established forces. That's all that matters to me as someone long on Apple.

    I'm not going to sit around charting the days until they catch Nokia, it doesn't matter.
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  •  
    Nov 04 10:53 AM
    47.8% gross margins on the iPhone, that's all you need to know.
    Reply | Link to Comment
  •  
    Nov 04 01:33 PM
    Very good points, regarding an iPhone nano. It's significant because it would make apple even more powerful and profitable. Apple needs to get as many toes wet as possible. The phones serve as a low cost entry point for apple's other products. Phones lead to iTunes sales, and appletv could be a next step (when it's ready) since it would easily sync with iTunes. And satisfaction with a phone by apple can easily lead to willingness to purchase a MacBook or iMac. An iPhone nano would accelerate apple's growth exponentially.
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  •  
    Nov 04 02:35 PM
    30 million iPhones per quarter seems highly unlikely. How about 10 million per quarter. Anyway, I'm just hoping that Apple doesn't turn into a cellphone company. I hope Apple just sticks with one or two high-end smartphones and leaves it at that. I want Apple to stay as mainly a computer and PMP company. If they build a game machine I wouldn't mind that, but the handset industry is just too fickle.

    I'll be glad when WIMAX becomes dominant. I think Apple will really be able to cream the current handset industry.
    Reply | Link to Comment
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