Needham & Co has raised its 12-month target price on Apple to $235 per share, with analyst Charles Wolf observing the iPhone halo effect took a "major boost" at WWDC.
"Apple is going for volume with the iPhone," Wolf said, observing that iPhone sales should increase dramatically in the second half of the year and beyond. Lower prices, a thriving application development environment and enterprise class features should drive strong sales.
"We estimate that demand for the iPhone should increase over four-fold in the wake of the 50 per cent reduction in its price," Wolf said, but noted that the massive roll-out into a total 70 countries this years means the actual increase in demand could easily exceed this.
There was a warning in the tale: "The major risk in the Apple story is macro-economic in nature. A slowdown in consumer spending could dampen Mac sales, the major driver of Apple’s growth. "
Wolf had this to say on the subsidy model employed to bring iPhone 3G in so low: "The company is now endorsing the razor-razor blade-pricing model, which is prevalent in the mobile phone industry. Apple will continue to sell the iPhone to the carriers at a $400 (or possibly at a higher price as AT&T suggested in its conference call). Apple will also receive a commission from AT&T for each iPhone sold through the US Apple Stores, which now will activate the phone. In other countries, where there are no Apple Stores, activation will occur exclusively through carrier stores."
More important, higher demand for the iPhone should also drive much larger Mac sales, the analyst says, as Windows users migrate following their purchase of the iPhone.
"Our past surveys indicated that the a Windows user owning an iPod was more than twice as likely to purchase a Mac as a Windows user who did not own an iPod. If anything, the iPhone halo effect should be far more powerful than the iPod halo effect," Wolf said.
On application development, Wolf noted that: "To date, the smartphone has been a software developer’s wasteland. Few, if any, applications have achieved measurable sales. This is about the change. As the old saying went in the PC world, “software drives hardware sales”. We suspect that as the library of titles grows, software applications will begin to play a meaningful role in driving iPhone sales in the future."
"The one major disappointment in the geographic coverage of the iPhone is that it’s not yet sold in China. However, we’re hopeful this will soon change in view of the fact that Apple has abandoned its carrier revenue sharing model and perhaps more importantly, that it’s written languages for the iPhone for both the new and the traditional versions of Chinese."