Apple, IBM deal could reach 42M new users; iPad recovery on deck?

Apple's deal with IBM will see a massive spike in uptake across the iPhone and iPad market, one Wall Street analyst says, at a time where iPad sales continue to stagnate.

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Image: Apple; IBM

Apple's partnership with IBM may well be one of the more lucrative technology deals of the year, if two Wall Street analyst's numbers are correct. 

Jefferies analysts Sundeep Bajikar and Mark Lipacis said in a note to investors on Friday that the partnership, said to be strategic rather than a financial deal, could bring in 42 million new users for Apple.

That could amount to tens of billions of dollars worth of iPhone and iPad sales over the course of the next year, which, by any account would give the iPad the boost is needs — particularly in the enterprise.

In case you missed it, the two technology giants announced in July they will build more than 100 custom-built enterprise apps  for Apple's iPad and iPhone customers in retail, healthcare, and other vertical industries. 

In return, IBM's cloud services — such as device management, security and analytics — will be optimized for iOS. The apps for iPhone and iPad will be built on IBM's software and cloud stacks.

Both companies win, and win big. Apple shines out of the deal, as it further lures enterprise customers towards snapping up the iPad in the business world.

The deal couldn't come at a better time for the Cupertino, Calif.-based technology giant.

Apple said at its fiscal third-quarter earnings that 99 percent of the Fortune 500 use iPads in their organizations. But those businesses only have an internal penetration rate of about 20 percent. 

"We think that the core thing that unleashes this is a better go-to-market, which IBM clearly brings to the table," Apple chief executive Tim Cook said on the follow-up earnings call. "But more importantly, apps written with mobile first-in-mind. Not all of the enterprise apps written for iPad have been ported from a desktop arrangement and not taken full advantage of mobile."

Although it wasn't directly addressed, the bottom line is that most Fortune 500 companies are keeping iPads limited for only a few staff or departments, or relegating it to lab-based test-beds. It also isn't clear if this 20 percent figure accounts for bring-your-own-device (BYOD) owners.

Despite the optimism in new users, don't expect a sudden spike in quarterly sales. 

Bajikar and Lipacis said Apple will "likely see incremental sales of iPhone and iPads due to the strength of IBMs business relationships." 

IBM will also benefit strongly from the deal. On Monday, IBM shares dropped close to 8 percent in early-morning trading after it said its shift towards cloud computing and other developing technologies fell short. The computing giant said it will not meet its profit target for the 2015 fiscal year.

The partnership is clearly a win-win for both, as Apple and IBM will both get in on the untapped enterprise market.

Other interesting nuggets from the Jefferies report: 

  • Apple's incremental hardware changes aren't enough to entice existing enterprise customers to upgrade, the analysts said. What goes on the device is far more valuable. "We believe enterprise is one such market where investments focused on developing new business-specific apps have potential to grow Apple's device installed base much more than device hardware enhancements would," the analysts wrote.

  • Some more details emerged on the revenue structure. Cook said at the time there had been no revenue stream discussions. The analysts shed a little light on how the deal might work on a monetary level. "Apple has said that it will continue allowing enterprise app developers to sell directly to enterprises without Apple taking a cut." That means the 30 percent Apple takes out of each purchase will be zero percent.

  • "IBM will likely manage this area and Apple unlikely to collect meaningful revenue," the analysts added. That's a benefit to IBM, rather than Apple, which doesn't exactly need the cash injection.

Apple reports its latest fiscal fourth-quarter earnings on Monday after the market closes.

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