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Mon, 14 Jul 2008 Apple's iPhone business will be 'big as the Mac'

Analyst predicts Apple's iPhone business will eventually match the value of the Mac segment

Jonny Evans

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Shaw Wu of American Technology Research predicts the iPhone could eventually become as large as Apple's current Mac business, returning up to $20 billion each year to Apple's bottom line.

While the analyst, who holds a buy rating on Apple stock with a value of $220, was full of praise for the device, he did note some shortcomings. For example, he observed AOL's AIM application will time out after a few minutes inactivity. "This is good in that it minimizes connection with the cellular network, but requires frequent reconnecting if the user is not interacting fairly constantly," he said.

The analyst - who installed the beta version of iPhone Software 2.0 which emerged mid-week last week notes that installation of the new iPhone 2.0 software was "fairly straightforward". However, that was before Friday's authorisation rush, when Apple's servers failed to cope effectively with demand.

Wu predicts Apple will sell 11 million iPhones this year for a total of 14.6 million shipped by the end of 2008 and 17 million next year for 31.6 million by the end of 2009. "We believe there is still room for AAPL to exceed our forecast depending on a broadening product portfolio, new carrier agreements, and continued adoption of unlocked devices. For every 1 million incremental iPhone units, we estimate $0.10-0.15 in incremental EPS, recognized over eight quarters.

"We expect iPhone adoption will see an acceleration in the second half of 2008, and beyond with 3G, a broadened product portfolio, additional carrier relationships, native Exchange support and more applications.

"iPhone is a relatively minor contributor today at only 3-4% of revenue, but we believe has the potential to become a very significant driver over the next 2-5 years. We envision iPhone one day becoming as large as the current Mac business (~$15-20 billion in annualized revenue)."
 

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