Piper Jaffray analyst Gene Munster doubled down on his $910 price target for Apple stock in the next 12 months in a research note released Friday, citing the increasing demand for mobile products.Looking further into the future though, Munster points to 10 key factors which he believes could help Apple’s stock hit $1,000 in the next “couple of years.” These factors range from the products in Apple’s pipeline to the potential for sales abroad.
Apple is expected to release several major product updates this year, starting with a refreshed Mac in the next six weeks and the iPhone 5 in October, followed by a new iPad early next year and perhaps even the much rumoured Apple TV.
Not only will these new products boost sales for the company, but according to Munster, these will reaffirm the company's reputation as an innovator.
The iPhone 5 in particular will be a huge deal for the company.
Munster writes in the research note that the new iPhone will be 'the biggest consumer product launch of 2012 as well as the biggest device upgrade cycle in smartphone history.'
Piper Jaffray expects that the new iPhone will feature several big changes including a larger 4-inch screen, 4G LTE and a redesigned exterior with a metallic back panel similar to the iPad.
Munster continues to believe that Apple's long-awaited television will finally start shipping in 2013 and will end up selling millions of units in its first few years on the market.
As Munster writes in his note, 'Piper Jaffray Analyst Michael Olson estimates the 2013 internet connected TV market at 110 million units. We believe Apple could ultimately capture 10 per cent of the market within 1-3 years after launch.'
This in turn will boost Apple's revenues. Munster estimates that Apple's revenues in 2013 will increase by 1 per cent with every one million televisions it sells.
Many analysts have raised concerns that carriers would cut back on subsidies for the iPhone in the near future, but Munster argues that current iPhone subsidies will remain in tact for at least the next two to three years.
He highlights three big factors behind this prediction: the iPhone's low churn rate, its value to carriers in bringing in new customers and the likelihood that if one carrier cut subsidies then others would use it as leverage to attract customers.
'We do not expect the subsidy question to go away, but are confident that subsidies will remain a part of iPhone sales in the coming years,' he writes in the note.
Apple will continue to experience incredible gross margins of more than 40 per cent for at least the next three years, thanks largely to the iPhone 'becoming a larger part of total sales.' Munster estimates that the iPhone's gross margin is 60 per cent, much higher than the iPad (40 per cent) or Macs (25 per cent). However, if Munster turns out to be wrong about carrier subsidies, then this point would collapse as well.
Munster also downplays concerns that higher wages at Apple's Chinese manufacturing partner, Foxconn, will have a significant impact on the company's gross margins. As he writes in the note, 'only between 10-15% of component cost are labour related.'
Apple is very efficient at quickly cutting out older devices from its product line--something Munster dubs the 'heart transplant strategy'--which he argues should help the company's margins going forward.
'We believe this strategy is a key factor in the company benefiting from scale of producing a streamlined product line, which in part could enable the company to secure the best component prices possible which translate to higher margins,' Munster writes in the note.
Apple's iPhone sales have exploded in China in the last year--with 8-9 million sold in the first quarter of 2012--and Munster expects sales will likely stay strong thanks to China's growing middle class.
'We expect this growing middle class and under penetration of smartphones in China compared to the rest of the world will enable China to continue to demonstrate healthy smartphone growth,' Munster writes in the note.
Piper Jaffray expects tablets will overtake PCs in sales before the end of the decade, and Apple's iPad will likely continue to be the leader in this growing market.
Munster writes that Apple will sell 66 million iPads this year and 176 million annually by 2015. By comparison, he expects 301 million tablets to be sold in 2015, meaning Apple will control well over half the market.
Enterprise adoption of Apple products has been a bit underwhelming to date, but Munster expects that this will grow organically based on increasing consumer demand for iPhones and iPads.
'Based on our survey work, 93% of iPhone users expect their next phone to be an iPhone,' Munster writes. 'We believe this demonstrate consumer desire for Apple's mobile products and that this desire at the consumer level will ultimately translate at the corporate level.'
Finally, Munster argues that the continued success of services like iTunes, iCloud and the App Store will 'enhance' Apple's ecosystem of products and make them more desirable, even if these services don't necessarily contribute much to profits.
'As Apple has previously stated, the company runs the iTunes store at just above break-even,' Munster writes. 'We believe the same general strategy applies to the App Store and will ultimately apply to whatever larger content initiative Apple undertakes to support the Apple Television.'
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