Apple Inc. (NASDAQ:AAPL) has the opportunity to as much as triple the smartphone market it is able to address in China and potentially add almost $2.4 billion to its handset business — if it releases a low cost iPhone. That’s according to a report issued to investors today from analysts at Morgan Stanley (NYSE:MS). The analysts are the latest in a line of other analysts who seem to be urging Apple Inc. (NASDAQ:AAPL) to release a low cost iPhone.
According to the report, if Apple Inc. (NASDAQ:AAPL) would release an iPhone that’s priced around $330, it would triple the company’s addressable smartphone market in China. They also say it would “ripen the market for a lower-priced iPhone.”
Morgan Stanley (NYSE:MS) analysts say they believe smartphone prices in China are stabilizing, which is “contrary to consensus view.” They believe users in the nation are trading up and said current indications show that China Mobile’s 3G network is “taking off” and that the carrier “could become a key driver of iPhone growth.”
The analysts make the case that a low-cost iPhone would add “incremental revenue and gross profit dollars,” even with a 40 percent gross margin and a one-third rate of cannibalization of the iPhone.
Analysts at Morgan Stanley have rated Apple Inc. (NASDAQ:AAPL) shares as Overweight and set their price target at $630 per share. They set their bull case for the stock at $980 per share and $70 in earnings per share. They say the bull case would be if Apple Inc. (NASDAQ:AAPL) maintains its dominance in the smartphone and tablet markets and sees acceleration in China that’s driven by a low-price iPhone.
Their base case is at $630 per share and $45 in earnings per share. They see the base case happening if the company maintains its strong market share in mobile devices but if the China Mobile partnership and Apple TV catalysts don’t “materialize” until late this year or next year. The analysts’ bear case is $400 per share and $40 in earnings per share if the company starts to lose market share to lower priced smartphones.
Trading on shares of Apple Inc. (NASDAQ:AAPL) was mostly flat pre-market on Tuesday.