Analysts drool over Apple iPhone 4 upgrade cycle

Analysts drool over Apple iPhone 4 upgrade cycle

Summary: 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.


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.

Reitzes said:

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.

Munster said:

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).

Related: All iPhone and Apple content.

Topics: Smartphones, Apple, Hardware, iPhone, Mobility, Verizon

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  • Apple will not balkanize the iPhone with CDMA

    The phone works with GSM, that's all folks! Do not even think they will open up the phone to work other technologies. Please do take the time to listen to Steve Jobs, at the last "All things digital" conference of this year.

    When talking about Apple TV, he said the phone market was the best market to go after because GSM is a worldwide standard, so the phone works everywhere.

    Apple has no interest in delivering a phone with different technology. Manufacturing costs would go up, and profits would fall.

    In any case, CDMA is not the future.
    • How do you know that?

      How do you know manufacturing costs would go up, and profits would fall?

      If you look at it from a manufacturing point of view, that not true at all, and even if it did, would not the loss of a million to make 10 million in return be known as "a profit"?
      John Zern
      • RE: Analysts drool over Apple iPhone 4 upgrade cycle

        @John Zern

        How do you know it wouldn't.

        CDMA is the past and the world has moved on and why invest in technology which will be history in 2011.

        If Apple is making a CDMA phone it will be for the largest market in the world i.e. China.
  • And the elephant in the room keeps on standing there

    being ignored, so let me point him out to you. He has big lettering on his hide. It says:

    I am Verizon and I cannot do voice and data at the same time.
    • So what? I have yet to see anybody use that feature

      so it's a non-issue. Besides, you can't use the feature while driving, wouldn't use it while in front of a computer, ect.

      That "elephant in the room" you speak of is a table ornament, He has big lettering on his hide. It says:

      I am AT&T and I can do voice and data at the same time though most don't use it nor care. ;)
      John Zern
      • RE: Analysts drool over Apple iPhone 4 upgrade cycle

        @John Zern
        Ok so elephant is over stating it but dismissal goes the other way? I've sent photos via email while talking to someone on the phone, had google maps running and updating, while on the phone, looked up movie times, checked the IMDB database, used street view, found houses on zillow and even just looked things up on the net. I have no idea why anyone would see this as a non-issue.

        It seems a lot like how people minimize the lack of general multi-tasking on the pre 4.0 iOS. It is not something that bugs you everyday but, there are times and not having the limitation is better than having it.
    • Doing voice and data at the same time destroys battery life

      Cue the double standards...
  • Apple does not do obsolete technologies

    CDMA is dead, done, over, history.<br><br>4G networks are already starting to be rolled out, anyone who has followed Apple should know by now that Apple does not do obsolete technologies. Why on earth would Apple roll out a CDMA phone now, just as CDMA is about to be replaced by 4G (aka. LTE) networks?<br><br>On top of that, clearly Apple are in the envious situation that they simply cannot get enough iPads and iPhones made, even though they outsource manufacturing to multiple partners. If they can already sell every single 3G/GSM iPhone they can get their hands on and clearly don't have enough manufacturing capacity to meet current demand, what is the point wasting time and money developing what would be an already obsolete CDMA handset?<br><br>Verizon need to wake up and smell the roses. The sooner they get off their ass and roll out a 4G network, the sooner they can participate in the iPhone frenzy. Similarly China Telecom may currently be the biggest network in China, but if they continue to stick with their non-standard TCDMA and fail to move to 4G/LTE then they are highly likely to be overtaken by China Unicom and others.<br><br>Finally, since the 'analysts' keep forgetting this, one of the reasons Apple has such high profit margins on the iPhone is that they have a single model (effectively) and can maximise their buying power around that single configuration. Designing two models, testing them, supporting them, stocking them, shipping them, etc. would dilute this.<br><br>...One Phone to rule them all, One Phone to find them, One Phone to bring them all and in the Apple world bind them...
    John Lockwood