Apple (AAPL) shares continued to trade down this morning following yesterday’s “iPhone 4S” unveiling, which most are conceding can be seen from one angle as a “disappointment” because it wasn’t an “iPhone 5,” meaning, a model with a new chassis.
Despite what was supposed to be a share price that would reflect mild underperformance leading up to the event, as I wrote on Monday, clearly the stock suffered some disenchantment among some investors. The shares turned up later in the day, however, rising $5.61, or 1.5%, to $378.11, though still below the broader market’s 2% climb.
But the mood today among the bulls is that the new electronics and the software in the iPhone 4S, and the discounting of the older models of the line, will be sufficient to drive growth amidst pent-up demand worldwide for the iPhone:
Walter Piecyk, BTIG Research: He notes that while the event’s revelations were “largely expected,” that’s not a bad thing, as “Lack of surprises has not translated to lack of growth” for Apple in past. Piecyk thinks the 4S and the discounts on the other models could boost Q4 unit sales above his 21.5 million units, perhaps as high as 30 million units. He also sees AT&T (T) benefitting in a couple of ways: “Sprint will be able to sell 1.5 million iPhones in Q4 primarily from upgrades of its existing customers [�] We expect Verizon to sell 3.9 million iPhones in Q4, but once again AT&T could be the biggest beneficiary as not only will they continue to be able to sell the 3GS exclusively, but they will now be able to offer it for free. They will also be able to market the iPhone 4S as the only 4G iPhone in America because of the inclusion of HSPA+ technology in the phone.”
Ben Reitzes, Barclays Capital: Reiterates an Overweight rating and a $555 price target. He maintains his estimate for $9.57 per share in profit this calendar Q4, but thinks his number could be too low given Apple’s schedule for the new phone is ambitious. “This pace of this roll-out is one of the fastest in the iPhone�s history and points to a big December quarter push (we note that December is a fourteen-week quarter this year). While there were few surprises, we believe the sell off in shares was overdone and in the long term Apple has laid the ground work to gain significant share.”
Toni Sacconaghi, Sanford Bernstein: Reiterates an Outperform rating and a $510 price target. “The unveiling of a personal assistant feature based on Siri � which we had previously anticipated5 � is potentially revolutionary,” writes Sacconaghi. “While other mobile platforms � particularly Android � can respond to specific voice commands and support speech-to-text translation (see Exhibit 4), no other platform supports the sort of facile user interaction that Siri does in terms of: (1) natural language processing; (2) context-awareness; and (3) integration with 3rd party content.” The discounted 3GS is to his mind a “low-cost” iPhone, though the $375 price of the thing before subsidies, based on his estimate, is slightly higher than the $350 he had projected for such a device. Sacconaghi thinks Apple could sell an extra four million units of the iPhone by having added Sprint-Nextel (S) to its roster of carriers, adding 88 cents to EPS. And the discounted�3GS, now selling for free with contract, could do so at a gross margin of 43% to 50%. That could add $4.50 per share to profit this year. Falling component costs should further help Apple with iPhone profits.
Shaw Wu, Sterne Agee: Reiterates a Buy rating and a $500 price target. The event was “mildly disappointing,” he writes, “but the reality is that iPhone 4S improves on the already top-selling iPhone 4 with a dual-core processor, much better graphics, more powerful camera, longer battery life, 4G speeds, and Siri voice recognition.” Wu writes that it all reminds him of initial “lukewarm” response to the iPhone 4. “We want to remind people that very few (if any) predicted the iPhone 4 would be successful. It had a rocky start in June 2010 with widespread press coverage on its controversial antenna design. But it turned out these concerns were overblown and misplaced as iPhone 4 went on to be the best-selling iPhone by a wide margin.” The 4S is “still the best smartphone,” and Siri will be the key differentiator, he thinks.
Kulbinder Garcha, Credit Suisse: Reiterates an Outperform rating on the stock and a $500 price target, and keeps his estimates unchanged. He sees distribution as the main story here, with software as a “differentiator”: “The new iPhone 4S (a world device) is slated to launch in 7 countries on October 14 and be available through over 100 carriers in 70 countries by year-end. In the U.S., Sprint joins AT&T and Verizon as a carrier partner. Apple also announced an 8GB version of the iPhone 4 and iPhone 3Gs that will be available for a subsidized price of $99 and $0 respectively. We believe expanding distribution (longer term adding the next 50 unserved carriers could itself result in 54mn incremental units per year) and tiered product pricing support our iPhone volume estimates of 86mn/135mn for CY11/CY12.”
Peter Misek, Jefferies & Co.: Reiterates a Buy rating and a $500 price target. Like Garcha, he thinks distribution and the tiered pricing model is the story. “We believe the most important announcement was that Apple was keeping the 3GS and 4 while lowering the price (under contract the 8GB 3GS is free and the original 16GB iPhone 4 is $99). We believe the unsubsidized wholesale price of the 3GS could be $350 (or even lower), which we believe has a large market opportunity in emerging markets and in pre-paid markets.” Misek breaks down his 3GS assumption as follows: “We noted that a low-cost iPhone at a $300 ASP, $180 all-in COGS, and 40% GM would add ~$1 of EPS for every 10M phones sold. Now we believe that the 3GS GM could have a ~45%, above the corporate average GM of 42% due to more aggressive cost concessions from suppliers and possibly a higher ASP.”
Mike Abramsky, RBC Capital: Reiterates an Outperform rating on the shares and a $500 price target, and keeps his estimates intact. There were few surprises at yesterday’s event, but he expects a “healthy” upgrade cycle for the iPhone. “reviously published (11/09/13, 2200 respondents) proprietary RBC survey data showed strong iPhone 4S buying intentions. As well, cutting the 3GS to $0 (subsidized) may double Apple�s global addressable market, and may help address rising mid-market Android competition.” Abramsky also heard a “subtext” in CEO Tim Cook’s first product unveiling: “iPhone and Asia/China were emphasized by CEO Tim Cook, to us illustrating Apple�s growth priorities and opportunity (129M iPhones sold, #1 global smartphone but 95% share yet to conquer).”
Mike Walkley, Canaccord Genuity: Reiterates a Buy rating and a $545 price target. “While iPhone 4S may be seen as a mild disappointment by investors as it retains the form factor of iPhone 4, we believe the model features several important hardware upgrades, including a dual-core A5 processor,” he writes, and the software features will generate increased “stickiness,” he thinks. The figure the company offered of 250 million iOS devices sold implies September’s sales of iPhone and the rest was better than he thought, he writes. So he raised his estimate for the quarter to $7.15 per share from $6.67.
So who’s not satisfied?
Alex Gauna with JMP Securities this afternoon reiterates a Market Perform rating on Apple shares, writing that despite “attractive improvements that should continue driving market share capture beyond the present 5% that it already commands of the 1.5B unit annual cellular handset market,” he nevertheless is concerned that “the advances, launch forum and presentations lacked much of the panache seen in the past,” which could swing investor focus back to “how the company will operate without visionary leader Steve Jobs at the helm as well as leave the door open for Android to continue gaining worldwide market share at a faster pace.”
Previously:
Apple: Morgan Keegan Ups iPhone Estimates, Cuts Target, October 4th, 2011; Apple: Don�t Be Bitter, Say Bulls, �4S� A Meaningful Upgrade, October 4th, 2011.
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