Talking Numbers

Munster: Five things to expect from Apple in 2014

Talking Numbers

Gene Munster, Senior Research Analyst at Piper Jaffray, says there are five things to watch with Apple in 2014.

As Apple shares trade near their 52-week highs, what can consumers – and investors – expect from the tech giant in the coming year?

Gene Munster, Senior Research Analyst at Piper Jaffray, is one of the top analysts covering Apple. He says there are five things to watch in 2014 with the company.

1. iPhone sales can grow 10% year-over-year, in line with high-end smartphones in 2014.

Munster says the high-end smartphone market is expected to grow at a rate of 10% next year. He believes Apple's sales will grow at that same rate. "What that means is Apple doesn't need to gain share to hit iPhone numbers," says Munster to Talking Numbers. "iPhone is just over half of Apple's overall revenue. And, that's the critical number that investors look at. That's an encouraging sign that, essentially, the Street numbers look like they're very achievable for 2014 on the iPhone."

2. iPhone sales with China Mobile in the March 2014 quarter should add 5% to Wall Street's 2014 Apple revenue estimates.

"The majority of 3G China Mobile customers pay for smartphones. That's about 170 million [people]," says Munster. "It's a smaller part of the bigger piece. To put 170 million in perspective, AT&T and Verizon combined 230 million subscribers."

Munster estimates Apple will get a decent portion of those subscribers as customers. "If you assume they get 10% of that, or 17 million units, that would add 5% to the Street numbers for next year," says Munster. "Just to put that 10% into perspective, in the US, with Verizon and AT&T, Apple has about a 55% share. So, that's a pretty conservative cut."

3. Expect a larger-screen iPhone in the fall.

"Apple has dropped hints that that's going to be coming," says Munster. "It's the segment in the US where iPhone loses to Android the most."

"If you are one of those people who really want a bigger phone and if you can wait another nine months, I think Apple is going to be coming out with a larger iPhone 6."

4. Expect the drop in the average iPhone sales price to be less than it was in 2013.

While the average sales price for iPhones fell 5.5% in 2013, Munster expects that rate will be slowed to a fall of 2.8% in 2014. "We believe this was driven in large part by Apple's decision to discount the iPhone 4 overseas to drive demand from the lower end," write Munster in a recent research report. "We believe that Apple's decision to make the 5C its mid-end phone instead of introducing a true low-end product is a sign that the company is committed to maintaining higher pricing."

5. Look for Apple's gross margins to stabilize in 2014.

Munster expects margins will stay within a range of 36% to 37% in 2014. That's a bit higher than the bear case scenario that has margins falling to 30% but it's not as high as the mid-40% range seen in when the iPhone 4S launched. That's because Munster sees more focus on will be put on the iPad Mini and iPad Air, two products with lower margins. As well, a larger screen iPhone will also nibble at the margins as well.

To see the full Talking Numbers interview with Munster on what's in store for Apple in 2014, watch the video above.

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[Disclosures: Piper Jaffray makes a market in the securities of Apple, and will buy and sell the securities of Apple on a principal basis.]


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