Apple's iPhone 4 is about to land and analysts are tripping over themselves to gauge the power of what's expected to be the company's strongest upgrade cycle ever.
As previously noted, analysts were upbeat about the iPhone upgrade cycle. After all, AT&T was pulling forward demand as it tries to lock in customers into new contracts before losing exclusivity. And Apple's phone is quite an overhaul. Piper Jaffray analyst Gene Munster came out with his initial prediction only to have Apple almost hit 60 percent of his target in a day. Toss in the fact that Apple had more than 600,000 preorders in one day and you get the sense this iPhone 4 rollout is going to be huge.
Wall Street analysts, an optimistic lot to start with, look uncharacteristically conservative with their predictions. Now they're scrambling to predict Apple's iPhone 4 units as well as the earnings and revenue growth that goes with it.
Barclays Capital analyst Ben Reitzes said in a research note that every 1 million iPhones represents revenue of $500 million and earnings of 25 cents a share. Not too shabby eh?
On Tuesday, Reitzes tried to rise above guessing the early iPhone 4 units sold. Reitzes was looking beyond the initial launch to the first quarter of 2011. Why? He said that he expects Apple to take its iPhone to CDMA networks, notably Verizon Wireless. Yes folks, the Verizon-iPhone chatter just won't die.
Our checks in the supply chain and within the industry indicate that production is likely to start in C4Q10 for a CDMA iPhone (possibly even dual band LTE) that can be used for Verizon (as well as other CDMA-based carriers) to be available beginning in C1Q11. The production schedule could also indicate that a CDMA iPhone could be sold in Asia at first (China Telecom possible), before calendar year-end, but we believe that Verizon would be the “main event” slated for C1Q11 or shortly thereafter. As a result of this possibility, we believe the iPhone 4 upgrade cycle is just beginning -- and the velocity of this cycle could extend through C1H11, helping mute seasonal trends. While widely expected – we believe any shipments by Verizon would be positive given significant pent-up demand for the iPhone in the US among Verizon customers.
The big number: Verizon Wireless would sell about 9 million iPhones in 2011. If the iPhone arrives at Verizon, the upside to our unit estimates could be material – in the millions - if executed well.
What's really interesting is that Verizon would just be icing on the iPhone upgrade cake. There will be a six month running start to the CDMA iPhone. Here are some key comments about the iPhone 4 upgrade cycle:
Chris Whitmore, an analyst at Deutsche Bank, said:
Initial demand for the new iPhone is incredibly robust based on initial demand indicators including: pre-orders, search trends and supplier checks. The iPhone officially launches on Thursday July 24th and we anticipate another ‘Apple event’ with long lines, heavy store traffic and stock outs. In addition, we believe iPhone orders have started strong internationally with UK shipments delayed unit 7/14 (similar to US lead time). We raise our iPhone unit estimate to 44M (vs. prior 41M) for CY10 and to 55M (vs. prior 50M) for CY11 due to: 1) strong upgrade demand of existing 3G and 3GS installed base, 2) more generous upgrade terms for existing customers from AT&T, 3) the significant feature upgrade and 4) anticipated strong international rollout through 2H10.
Jeffrey Fidacaro, an analyst at Susquehanna Financial Group, has the highest estimate for iPhone 4 upgrades in the current quarter:
Given the size of the iPhone 4 pre-order and our analysis of the expected upgrade cycle, particularly the remaining 3G users, we believe the full launch weekend of June 24-27 is shaping up to potentially be a 2 million-3 million iPhone event, about 2-3x higher than the one million units sold over the first three days for both the 3GS and 3G launches.
Note: Other analysts have pooh-poohed this high estimate because there will be limited supply. It's unlikely that Apple could sell 2 million to 3 million iPhone 4 units if it wanted to.
Apple announced that it received over 600k pre-orders for the iPhone 4, more than any single day pre-order volume ever. AT&T also indicated that pre-order sales were 10x higher for iPhone 4 than they were one year ago for the iPhone 3GS. We see this is as a positive indicator for the iPhone 4 launch and we have increased confidence in our upwardly revised June and Sept. quarter iPhone estimates (both at 9.5m units).
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