Executing on iPhone and iPad Strategy in 2011 Would Carry Apple Past $500

Apple (NASDAQ:AAPL) recently announced its FY Q1 2011 earnings results, which were mixed with regards to our estimate though results did beat consensus estimates with $6.43 in EPS on revenues of $26.7 billion for this quarter against the consensus estimate of $5.38 in EPS on revenue of $24.42 billion. ^[1] We nudged our price estimate higher by $2 that is now $420, which is about 20% higher than the current market price. Apple competes with phone makers like Research in Motion (NASDAQ:RIMM), Motorola (NYSE:MOT), Nokia (NYSE:NOK), and Google (NASDAQ:GOOG).

As we look at 2011, the story is largely still about the iPhone and iPad for us. The iPhone now accounts for 52% of our price estimate while the iPad has risen to just over 7%.

iPhone 4 on Verizon could make a bigger splash

A few days back, Apple announced that iPhone 4 will be coming on Verizon (NYSE:VZ) network from February 2011. ^[2] This could be a big trigger for Apple in terms of iPhone market share if Verizon’s network and subscriber base embrace the coveted smartphone in earnest. Verizon has over 90 million subscribers in the U.S. with 30% market share. Apple iPhone has increased its market share from 0.3% in 2007 to 3.1% in 2010, and we expect it to continue to increase to around 6.5% by 2013. Equivalently, we estimate that Apple sold 47.5 million iPhone for the calendar year 2010, and we expect it to increase to around 116 million by 2013, at an average annual growth rate of 27%.

Additionally, enterprise support for iPhone has continually increased with 88 of the Fortune 100 companies and almost 60% of the Financial Times Europe 100 companies now testing or deploying iPhones. ^[3] These are encouraging signs for iPhone and if Apple is able to increase iPhone’s market share at a faster rate to reach 10% by 2013, this raises our price estimate squarely to $500.

Can iPad remain king of the tablet jungle?

Although Apple has been able to rapidly increase the iPad sales from 3.3 million in CY Q2 2010 to 7.3 million in CY Q4 2010, ^[4] it does face competitive threats from players like Samsung, RIM, Dell (NASDAQ:DELL) and HP (NYSE:HPQ) in the future. However given its popularity and the adoption of the enterprise market, the iPad will not be easy to beat.

Apple management claims that iPad’s design is far superior to Microsoft (NASDAQ:MSFT) OS or Google (NASDAQ:GOOG) Android OS for tablets – why wouldn’t they? ^[5] According to Apple, Windows-based operating system are heavy, expensive, have a weak battery life and require a keyboard for the input. With regards to Android, Apple claims that Android and so does not provide the ideal tablet experience.

We estimate that Apple sold just under 15 million iPads in 2010, and we expect its sales to increase to around 35 million by 2013, a 35% CAGR. According to Gartner, the tablet market is expected to grow from 19.5 million in 2010 to 208 million in 2014. ^[6] If Apple is able to sell around 60 million by 2013 instead this would add just under 5% to our price estimate.

You can see the complete $420 Trefis Price estimate for Apple stock here.

Visit our home page at trefis.com for details on how to win a free iPad.

1. Yahoo Finance Analysts Estimate for Apple [↩]
2. Apple press release, January 2011 [↩]
3. See SeekingAlpha, Apple FY Q1 2011 earnings conference call presentation transcript, January 2011 [↩]
4. Reported in Apple’s earnings release [↩]
5. See SeekingAlpha, Apple FY Q1 2011 earnings conference call transcript, Q&A section, January 2011 [↩]
6. Gartner forecast for tablet market, October 2010 [↩]