Pointing to Apple’s fourth quarter results Wolf notes that the iPhone, “has emerged as largest revenue and income generator in the company’s product portfolio.”
“We’re maintaining our Strong Buy
rating, our price target of $240 and our 2009 earnings per share estimate of $5.65,” the analyst added.
What makes this quarter most interesting is that it was the first time, Apple reported non-GAAP results, including iPhone revenues booked in the quarter rather than amortizing these revenues over eight quarters.
“This single change produced nothing less than an astonishing increase in Apple’s revenues, gross profits and net income,” Wolf noted, “Apple’s non-GAAP revenues were 48% higher, its gross profits were 66% higher and its net income was 114% higher than the corresponding GAAP metrics. Non-GAAP earnings per share were $2.69 vs. GAAP earnings of $1.26.
“iPhone sales should continue to grow, implying that non-GAAP numbers will exceed the GAAP results for the foreseeable future,” the analyst added.
“Our analysis indicates that the average price of an iPhone was $666 in the fourth quarter with close to a 50% gross margin. This implies that some carriers are subsidizing the price of the phone by over $450. It also implies that Apple has considerable flexibility to reduce the price of the phone in tandem with its subsidized price. If Apple were to pursue this strategy, the iPhone could effectively take over the smartphone market,” Wolf added, speculating prices could fall to $99 per iPhone in future.
Most of the iPhone’s competitors run on relatively primitive operating systems,” Wolf notes. “These systems are simply incapable of supporting the development of software applications that match the ingenuity of those written for the iPhone. In the app store, Apple has reinvented the PC maxim that software drives hardware, in this case iPhone sales, Wolf added.
Wolf’s one note of caution is that two million of the seven million iPhones Apple sold in the fourth quarter ended up in carrier inventories. Sell-through sales represented about five million units, suggesting sales may decline in the December quarter.
The major risk in the story is macro-economic, specifically the depth and durability of the current recession.
Many apologies for the lack of activity here at Distorted in recent days, as explained elsewhere my RSI has flared up to an untenable point, and I need to reduce my writing activities, or lose the use of the arm. In other words, I can’t sell my words cheap any more.