iPhone 2009: $10 billion profit?
Let’s do some math, courtesy of Apple and Piper Jaffray analyst Gene Munster:
Apple: Apple will sell 10 million iPhones in 2008.
Gene Munster: Apple will sell 45 million iPhones in 2009.
Gene Munster: 52% of iPhone buyers are new AT&T customers.
Gene Munster: Apple will receive $3 a month for existing AT&T
customers, and $11 for new AT&T customers.
Along with those statements, let’s assume that new and less expensive iPhone models won’t lower the average too much, that Apple maintains at least a 25% margin (likely), and that Apple’s payments from AT&T are pure profit. Let’s also assume that the 4GB and 8GB models sell equally well, despite some initial and dubious reports that most buyers are choosing the 8GB model.
So, how much will Apple earn in 2008, if it sells 10 million iPhones?
How about 2009, if it sells 45 million iPhones?
Apple’s annual profit for the year ending last September was $6 billion, so this raises earnings by 37% for 2008, and 94% for 2009.
No wonder Apple is excited about iPhone.
You might be thinking, well, that’s a lot of assumptions and a lot can change between now and then. And that’s true.
But those numbers assume flat revenue for all of Apple’s existing product lines (Macs and iPods), zero revenue from any new product lines (AppleTV and who knows what else), and zero revenue from iPhone peripherals and tie-ins.
Will Apple’s revenue from Macs likely grow?
Yes.
Will Apple’s revenue from new, non-iPhone product lines likely grow?
Yes.
Will Apple likely make a lot of money selling iPhone peripherals?
Yes.
Is Apple about to enter uncharted waters of profitability?
Yes.
Update
Reader John pointed out that Gene Munster also estimated an average selling price of $330 in 2009, which would lower 2009 projections as follows:
This means an increase of 61% for 2009 earnings, rather than 94% as stated above.
I believe Gene Munster put the average iPhone price for 2009 at somewhere around USD 330…
One small issue: Apple has stated they’ll recognize revenue over 24 months for the iPhone (they haven’t said anything regarding the alleged AT&T payments, but assume that they recognize it immediately).
Therefore using your numbers, it would be
2008: 1545.5M (plus half of whatever they do in 2007)
2009: 5636.5M
Best,
Jason.
Thanks Jason, you’re right about Apple recognizing the revenue over 24 months for iPhone (and AppleTV). I had originally tried to model that in my numbers, but found that the accounting niceties were obscuring the central point, that the iPhone moves Apple into a new era of profitability, no matter how that profit is recorded.
Aha. but you’re assuming non-NA carriers will give Apple the same terms. Sure, lots of profit on phone sales, but no guarantees on revenue streams from Europe and Asia.
What should be more interesting is if they turn the iPhone into a mobile revenue stream (a la on-the-go-iTunes) which could accelerate growth in the digital download market. Not a lot of profit, though.
AAPLs pretty healthy no matter how you bake it. Mac sales are experiencing accelerating growth, iPhone adds another significant revenue stream (on top of iPods, which are suffering a shrinking margin rate and market saturation in many core markets).
Disclaimer: I’m long on AAPL.
Is it likely that Apple can sell 45 million iPhones in a year’s period. It sure sounds like a stretch to me. I hope they can but that number just seems so high. It might be possible if the iPhone was unlocked, but to convert so many people to AT&T in the US is mind-boggling.
I’m not sure that you have the right figure for Apple’s 2006 net profit. My records show that it was just a hair under $2B, not $6B as you have above.
My own estimates would not show Apple’s margins at 25%. Operating margins last year were about 12%. I think this is historically high, and a more conservative net margin would be 10%. Using that, would lower your Munster 2009 estimate to about $1.5B in net income, quite far from your $6.176B you have estimated way at the top of this story.
BTW, I own 585 shares of AAPL.
Fair enough, Admin. I agree with your central point, that Apple will make a lot of money from iPhone during iPhone’s product lifetime. It does, of course, make a big difference on a per-year accounting basis; your numbers are startling (7.5 billion dollars in 2009?! Whoa!), but inaccurate even granting the “guessing” aspect of it. But I suppose “5.5 billion dollars in 2009″ isn’t as impressive sounding.
Best,
Jason.
(And certainly no where as impressive as the headline title of $10 billion!)