Evercore Partners, a New York-based equity research firm, says in its latest report that Apple has plenty of headroom left for growth. Apple Inc. (NASDAQ:AAPL) stocks have plunged recently, due to concerns over the decline in gross margins after the release of iPhone 5 and iPad Mini. Apple Inc. (NASDAQ:AAPL) is currently trading at $589.53. Evercore holds an Overweight rating on Apple stock, along with a price target of $775.
Dollar Shift In The IT Hardware Market
Though the IT hardware market isn't witnessing much growth due to global economic slowdown, the dollars are simply shifting. The two biggest shifts are from cellphones to smartphones, and from traditional PCs to tablets. And Apple Inc. (NASDAQ:AAPL) is leading the charge in both. So its revenues are increasing, even when the sales of other giants like HP, Dell, Intel Corporation (NASDAQ:INTC), HTC Corp (TPE:2498), Nokia Corporation (NYSE:NOK), and Research In Motion Limited (TSE:RIM) (NASDAQ:RIMM) are declining.
Rob Chihra and Edison Yu, analysts at Evercore Partners Inc. (NYSE:EVR), calculated that Apple's revenue growth YTD of $29 billion mirrors the $26 billion revenue declines accumulated by Dell+HP+HTC+Intel+Nokia+RIM. The same pattern continues in the December quarter.
More importantly, Apple Inc. (NASDAQ:AAPL)'s revenue gains this year so far add up to 1.6 times the combined growth of Dell + HP + Amazon + Samsung + Google + HTC + Intel + Microsoft + Nokia + RIM. Even for the December quarter, analysts estimate Apple's revenue growth to be 1.3 times the aggregate growth of other heavyweights (chart below).
Evercore expects Apple Inc. (NASDAQ:AAPL) revenues to grow 23 percent to $193 billion, and EPS to increase 14 percent to $50.33 Y-o-Y in FY13. Apple has plenty of opportunities to grow. iPhones account for just 20 percent of the global smartphone market and less than 8 percent of the global cellphone sales. Macs account for a little over 5 percent of the global PC market in 2012, up from 4 percent in 2010.
Gross Margins To Suffer In December Quarter
Investors are concerned over the increasing pressure on Apple's gross margins. Analysts believe that these are just transitional speed bumps, particularly driven by low early yields on iPad Mini and iPhone 5. These are not structural hurdles. Evercore estimates Apple's gross margins to be 39 percent in the December quarter before recovering back to 42 percent in the March-13 quarter, when it completely moves up the manufacturing/component yield curve.
Instead of indulging into an aggressive pricing strategy, Apple Inc. (NASDAQ:AAPL) is maintaining its usual platform of creaming off the most profitable premium customers in each of the markets it operates in.
Expanding Platform Shares
Apple's iOS and Mac platforms contribute to 20 percent of the combined smartphones+tablets+PCs markets. In 2010, they accounted for 15 percent of the cross platform market share and just 8 percent in 2008. Apple's iOS+Mac is still far behind Android's 42 percent and Windows' 29 percent, giving Apple headroom for further growth.
The only risk for Apple Inc. (NASDAQ:AAPL) is its heavy dependence and concentration on a handful of key products, especially iPhones and iPads.