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Competing with non-consumption: Can Apple sell 100M iPhones next year?

[Wedge Partners analyst Brian Blair] also contends that Apple’s production forecasts suggest the company thinks it can sell 100 million iPhones next year. “While a staggering number any way you look at it, our checks reflect full calendar 2010 builds in the 48-50 million unit range,” he writes. “While this number can change and adjust downward or upward  based on demand, we believe it is incredibly bullish that Apple feels it is possible that they could see nearly 100% year over year growth for iPhone in 2011 as this would mean that exiting 2011, Apple would have approximately 10% share in the global handset market.”

via Apple Can Sell 100M iPhones, 48M iPads in 2011, Analyst Says – Tech Trader Daily – Barrons.com.

Apple is, in my estimate, likely to sell at least 47 million iPhones in calendar 2010. (16 million in the current quarter, or 85% y/y growth).

The 100 million in 2011 estimate assumes 100% growth on average. Is it really “staggering” to forecast another year of triple digit growth?

The history of growth is one indicator. There the news is good: the product has been able to sustain that level of growth for three years.

The second indicator is room to grow. Apple largest competitor is smartphone non-consumption. This competitor holds 76% share, but is rapidly losing share. Consider the the following chart:

I’ve heard the mantra that smartphones are not for everybody and that the vast bulk of consumers will opt for voice-oriented phones indefinitely, especially in low-GPD/capita countries.

To this I point out that there are no technical obstacles to implementing smartphone technology in all price points nor that there are any constraints on distribution, network technology rollouts or shortage of capacity to produce these products for all current mobile users (5 billion at last count). I also believe that user demand for this level of product utility will shift rather more quickly than supply.

So, in my mind, the headroom looks pretty good as well.

Lastly there is the question of alternative platforms. I’ll get to that shortly.

  • asymco

    PC's were once thought of as luxury products. So were cars, televisions and refrigerators and mobile phones. I'm pointing out that there is a very high likelihood that the "luxury" of smartphone will become common enough to be the choice for a vast majority of the market.

  • Danthemason

    16 million in the latest quarter means 50% growth from todays pace to get to 100 million in the next year, not a 100% increase.

    • asymco

      Sales are highly seasonal. During 2010, quarterly sales were (in million units): 8.7, 8.4, 14.1 and (forecast of) 16. That totals 47.4. 100 million next year would imply more than doubling, hence 100% growth.

      • http://twitter.com/aegisdesign @aegisdesign

        Apple have dipped in Q4 every time for each iPhone model. Are you predicting that pattern will not repeat?

      • asymco

        Actually they have not dipped except in '08 Here are sequential volumes:
        07: 1.1, 2.3
        08: 6.9, 4.4
        09: 7.4, 8.7

      • D.Z.

        Apple is ready to produce 50 million units in the next year and even more. The question is – are 50 million more people ready to spend 400$ (it's just example) for smartphone, if other manufactures try to sell own smartphones with 150-200$ price(this is other example too). Other way – is Apple ready to drop price to takes these new 50 millions people and therefore decrease profit to improve market share.

      • asymco

        Trust me on this one, the demand is far higher that that. Prices are always an illusion in this market, don't couple demand with average selling price.

      • r00fus

        With QE2 coming, perhaps $400 isn't that expensive anymore :-)

  • Ted Cranmore

    My question is whether Apple continues to take as much share as projected in a market where "Typical Joe finally gets a smartphone". While this should be good for Apple with it's superior interface, I also think a fair number of Typical Joe's will actually care mostly about price and/or maintaining the brand they currently hold in their pocket because 'it always worked'. So, yes….it's going to kill me to say it, but this movement to the masses might even stem the tide for the likes of Nokia/Samsung etc.

    Don't take this the wrong way, iPhone will be a clear leader, but when you get into the crowd who isn't buying a smartphone because they can't wait to buy it, but simply because it's time for a new phone and everyone else has one, the strength of the Apple product itself may not be as important to this market segment.

    • Ted_T

      Considering the iPod's 70% market penetration, brand comfort should not be an issue as most people already have an Apple product, typically an iPod. As to price — the low end iPhone in the US is currently $99. The gap between $99 and $0 is easily surmountable. And mobile carriers have shown no willingness to offer cheaper data plans for off brand (presumably cheaper) smartphones.

      So if the consumer is offered a cheap or free iPhone vs. a free, cheap looking Android phone and the carrier charges exactly the same for the 2 year plan, why are they going to go Android?

      So far the top reason for buying Android has been unavailability of the iPhone on 3 out of 4 carriers, a condition that's about to end.

      Granted in countries where unsubsidized phone sales are the norm more price competition will be possible, but ironically it is precisely there where so far the iPhone has been beating Android handily.

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  • Pat S

    When price becomes the primary consideration over value then Apple will lose since they are not going to lead the chase to the bottom. So what is the difference between a feature phone and a smart phone. The primary differentiator in markets like the US is a requirement for a data plan. We can assume that the power of the silicon will increase with Moore's law so the functions of today's smart-phone will be available for less cost in the future, IMO the defining feature of the current smart-phone is robust web access & task specific programs. The challenge for Apple is a willingness to compete in the segment of the market dominated by low cost feature phones where their is little to no brand allegiance and the primary motivator is low price. Apple still has some easy growth ahead. If they offer a CDMA phone they include potentially 400M customer, and their are additional carriers/countries which are available for expansion. Additionally the option of additional differentiated models at different price points give plenty of room to continue the growth.

    • kevin

      But when does price become the primary consideration? Usually when the item reaches the stage of commoditization. When is that for smartphones? Likely not for a long-time as there are many more really useful capabilities for a 24/7-always-connected-mobile-computer-that-is always-with-you. The most obvious is LTE and bigger pipes. Many capabilities, such as waterproofing, mobile payments (replacing credit cards), NFC, live TV, etc, are doable but missing the great user experience and global scale of Apple. And then there are creation capabilities that come with faster CPUs. Plus people buy new phones every 18-24 mos, so the population of purchasers stays huge. Even if it goes to 24-30 months (due to higher cost), it's much shorter than almost anything else people buy.

      So it will be a long time before Apple is pressured to be in the market of low-cost featurephones (which in a few years, will be the equivalent of today's smartphone/iPhone).

      • Ted Cranmore

        I agree this stages is not coming immediately, but has to come some day. I think "Wave to pay" via smartphone puts such a device in almost everybody's pocket. If Apple can lead the charge here, they'll maintain further key brand differentiation even to the crowd that today has little use for the other features that early adopters value so highly.

  • timnash

    Apple's biggest problem in hitting this target in 2011 is production ramp up. While the iPhone 4 is made using a prototype machine, production will be restricted and unless the iPhone 5 uses components that are commonly available or can themselves be quickly ramped up, again production over June-September will be restricted.

    • kevin

      Apple used the same basic casing for iPhone/iPhone 3G/iPhone 3GS. The expectation is that the pattern is followed and there will only be minor external changes (possible just for the antenna?) for iPhone 5. The internals (i.e. board) will certainly be changed, but that usually doesn't have a big impact on production tooling.

      • timnash

        Until Apple has solved the iPhone 4 production issues so that prototype machines don't have to be part of the production line, production will be restricted. If the iPhone 5 design solves these production issues and doesn't have leading edge components that are themselves restricted in supply, then the ramp up can be faster.

        Unfortunately production isn't like turning on a tap, which is why LG said a couple of months ago that it would be unable to catch up with Apple's iPad screen orders before January.

      • Joe_Winfield_IL

        Apple has added Pegatron to the mix to help keep up with the demand that Foxconn can't meet with supply. Foxconn is also rapidly building out additional capacity with new facilities. I can't speak to the ability of robotics manufacturers to supply additional prototype machines, or Apple's options for building iPhones using a different manufacturing technology.

        The increased demand isn't news for Apple or its contract manufacturers. Correct me if I'm wrong, but I think Horace's thesis is basically 100% annualized growth based on manufacturing and distribution build-out. Apple has been looking at this for a few years, and likely has a plan in place to continue ramping production.

        The iPad is a different story; the market for tablets didn't exist a year ago, so there was little manufacturing capacity and componentry from which to build a base. 3.5" screens are used by dozens of phones today, so LG, Samsung, etc. aren't completely dependent on Apple contracts to justify capital outlay. This isn't true for the 9.7" screen.

      • timnash

        All the references I've seen suggest Pegatron will be involved with producing any CDMA iPhone. That will have at least some changes from the current iPhone 4 and so may be easier to make.

        As Apple mentions in the latest 10K, it isn't always possible to source components from more than 1 or 2 manufacturers and this can lead to interruptions in supply. While Apple does its best to accurately forecast how many iPhones it needs, nobody knows how big the demand for smartphones is and how long the rapid growth will continue. Same for iPads.

      • r00fus

        How long has Retina-display been available? You can't say that the same assembly lines can be used to manufacture this as the S-AMOLED displays…

        It's not just the A4, but the screen isn't found anywhere else but the iPhone4 and iPod Touch (4G).

      • Joe_Winfield_IL

        Fair point. I shouldn't go spouting off when I haven't thought it all the way through. Still though, Apple has much more history with iPhone than with iPad. This history allows for accurate forecasting, and in turn leads to production decisions and capital allocation in advance of sales. The iPad caught everyone by surprise (admittedly even Apple execs), and as a result, ramp-up is responsive instead of proactive.

      • kevin

        Apple is now supplying enough iPhone 4s to meet demand in the US as the online store shows shipping within 24 hours this week for the first time, and iPhones are now sold in Apple Store, Best Buy, Radio Shack, AT&T, and the-just-added Target's 846 stores. The UK online store shows 1 week, and most of the rest shows 2 weeks, so production isn't fully meeting demand worldwide. But Apple has 6 more months to ramp production for the rest of the world.

  • Jon T

    A similar graphic can be applied to the Mac where that huge untapped market is the -as yet- unquestioning Microsoft Windows crowd.

  • famousringo

    Yeah, it blows my mind that Apple now has so many products using nearly identical guts. In the last quarter, Apple sold roughly 25 million A4s.

    I wonder if there's an A5 in the works for 2011. Perhaps also a burlier A6 to match the larger battery and screen of the iPad. How far is Apple going to take this ARM customization?

    • Kristian

      Apple is one of the companies behind the ARM so we haven't seen anything yet ;)

      "The Company was founded in November 1990 as Advanced RISC Machines Ltd and structured as a joint venture between Acorn Computers, Apple Computer (now Apple Inc.) and VLSI Technology."

      • Joe_Winfield_IL

        Unfortunately, Apple had to sell their share during the dark days; they needed cash too badly. They may still have a connection to ARM, but they aren't involved in any joint venture.

  • r00fus

    What would be nice if the "non-smartphone" would break out into feature-phone and plain handsets.

    There very little space for the iPhone and other smartphones in the plain handsets category, but featurephones are ripe for conversion… aside from having booby traps (internet/WAP button) and lackluster interfaces, all the new "features" are completely outclassed by Apps on an App Store/Market, and most of those will require data plans to be really useful.

    • asymco

      It's a one-way street. Smartphone users don't think of getting a plain phone as their next phone. Feature phone users are very likely considering to upgrade to a smartphone. It's just a matter of time before that chart above turns all blue/green. The only unknown out there is how long.

  • dms

    No doubt this is a part of the reason Apple's margins are so healthy. All the major components (chipset, flash memory) are basically the same in all their iOS devices, which allows huge economies of scale and component pricing advantage over their rivals.

  • yet another steve

    The market is so huge, I think Apple would trade margins for share in heartbeat. But right now their challenges are manufacturing and distribution (CDMA.) This is the ipod business only much much bigger. Apple won't race to the bottom, but it also won't leave a big umbrella that let's competitors get fat. iOS is a fixed cost, and it has the best economies of scale in the business.

    Steve Jobs didn't get on the conference call to crow about margins.

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