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It's going to be a very happy holiday season for Apple (Nasdaq: AAPL) -- overall Mac sales in the United States were up 21 percent year over year in October and November, according to the NPD Group.
Another analysis firm, Gartner (NYSE: IT), projects that smartphone sales will increase over the next few years, with software, services and content being much bigger drivers than hardware. The iTunes App Store comes to mind.
"It's going to be an Apple Christmas, and I'm pegging revenues at (US)$650 million above street estimates," Broadpoint AmTech analyst Brian Marshall told MacNewsWorld.
Stairway to Investor Heaven
The record figures expected by Marshall will be driven by sales of iPhones, Macs and iPods. He pegs worldwide sales figures to hit 11.3 million for iPhones, 3.3 million for Macs, and 19.8 million for iPods.
Better yet, international iPhone sales will be strong. "Watch for significant international iPhone activations," Marshall said. That's crucial because overseas sales will drive growth. This is why it was key for Apple to get into China.
Apple shared closed Tuesday at $194.25. Although they've been underperforming the S&P 500 for eight days from Dec. 3, hovering between $188.68 and $196.27, that's not an indicator of trouble, according to Marshall. This activity is better attributed to technical issues and position sizing at year-end, he said, and it doesn't indicate fundamental trends. Apple shares underperformed the S&P 500 five times in 2009, and each time they recovered to the price levels preceding the underperforming period, he pointed out.
Position sizing is the process of determining how many contracts to trade when a broker's trading system gets a signal from their back testing products. Back testing is the analysis of historical data related to an investment opportunity and comparing the results to the investment's current status.
"We peg earnings to be 6 percent, or $650 million, higher than the street," Marshall said. Broadpoint AmTech has set a price target of $235 per share for Apple stocks.
Smartphone Market Growth
Worldwide smartphone sales will keep growing, Gartner analyst Carolina Milanese predicted. They will make up 38 percent of total mobile sales devices by 2013, up from 14 percent in 2009.
The prices of enhanced phones and smartphones will fall by about three percent worldwide in 2010, Milanesi said. This will lead to vendors pushing software, services and content to sustain and grow their margins. Mobile operators will associate all smartphones with flat-rate data plans, which could increase the cost of ownership beyond the average consumer's reach, Milanesi warns.
Little of this will impact the iPhone. "We believe the iPhone is by far the single most important driver of the postpaid subscriber addition market in the U.S. today," Marshall said. Apple, he thinks, will penetrate the U.S. market even more if Apple signs on Verizon as a second wireless carrier for the country.
"I expect Verizon to offer iPhones in the second half of 2010 because it has a better network and offers more market penetration," Marshall said. AT&T's (NYSE: T) exclusive deal to be the iPhone's wireless carrier in the U.S. is widely believed to expire in June of 2010.
The Motorola (NYSE: MMI) Droid and the growing Android apps market won't constitute a dire threat to Apple, Marshall said. The Android marketplace now stands 20,000 apps strong, according to AndroLib. "In my view, the Droid is more of a threat to the BlackBerry," Marshall explained. "The Apple cart is off and running, and nothing can stop it now."
Whither AT&T?
AT&T's position as the sole wireless carrier for the iPhone in the U.S. has been a double-edged sword. On the one hand, it has contributed strongly to the carrier's business. "We believe the iPhone represented over 90 percent of AT&T's postpaid net additions in the September '09 quarter," Marshall said. "This is the main reason why AT&T's postpaid net addition base overtook Verizon over the last several quarters."
On the other hand, AT&T has been criticized by iPhone users for its spotty service. It came in last in the latest Consumer Reports U.S. wireless carriers satisfaction survey.
AT&T did worst in cities with the largest number of iPhone owners, such as San Francisco, the survey found. That's because iPhone users suck up huge amounts of data as they download and use apps, watch movies and perform other bandwidth-hogging tasks.
AT&T's response to this has been twofold. It has invested billions of dollars in improving its wireless network over the course of this year. Now, it may also seek to control bandwidth usage.
Last week, Ralph de la Vega, who runs AT&T's wireless and consumer divisions, told attendees at a UBS investors' conference that the carrier will introduce incentives to encourage customers to cut back on their data usage. Most users won't be affected, as about 3 percent of AT&T's customers account for 40 percent of its traffic, he claimed.
AT&T has been experimenting with usage caps on its high-speed landline Internet service in select cities, but de la Vega ruled out this approach for the wireless service. Still, the announcement hasn't won AT&T many friends. Users are, if anything, even more annoyed, viewing the statements as a "blame the customer" position.
Further, it's not clear if AT&T can even introduce any kind of curbs on wireless Internet access. "They've been selling their data plans as unlimited plans so, if they begin limiting them, consumers may have a false advertising case to bring to the Federal Trade Commission," Carl Howe, director, anywhere consumer research at the Yankee Group, pointed out.
Also, the terms of the contracts may themselves prevent AT&T from making any change. "Those two-year contracts that iPhone customers sign go both ways: AT&T can't suddenly change the terms of those contracts without getting the subscriber to agree to the change in terms," Howe told MacNewsWorld. "My guess is that iPhone users aren't likely to suddenly agree to have their bandwidth limited just because AT&T thinks it might be convenient."
Automated network protocols can properly deal with bandwidth hogs and prevent any type of network congestive failure, according to Howe.
Why should investors care? Simple -- if AT&T's service continues to be unacceptable to iPhone users and the carrier can't trim their bandwidth usage, the door is wide open for Apple to approach Verizon. Whether or not Verizon is interested in doing a deal with Cupertino will depend on several factors, including the kind of terms it is offered. Still, there's always the possibility that this could happen and, if it does, it could lead to for yet another surge in Apple share prices.
