Morgan Stanley: New iPhone Partners Source of Revenue Growth for Apple

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Morgan Stanley: New iPhone Partners Source of Revenue Growth for Apple

Amidst fears that iPhone revenues could decline in coming months due to longer carrier upgrade eligibility periods and reduced carrier subsidies, Morgan Stanley (NYSE:MS) analyst Katy Huberty indicated in a note on Friday that Apple Inc. (NASDAQ:AAPL) may see increased revenue growth from the addition of new carriers. In all, she remains unconcerned over changing market conditions amongst the current carrier group, as the new carriers and overall product growth are likely to offset any declines caused by changes in carrier policies.

One such carrier that is modifying their upgrade policies is AT&T Inc. (NYSE:T), requiring iPhone users to complete 20 months on their existing contract before they are eligible for a product upgrade, compared to 18 months in the past. Huberty indicated in her note that much of these changes are incorporated into product shipment forecasts already, stating that Apple’s estimate of 165 million iPhone unit shipments in 2013 could accommodate up to 24-month upgrade periods from most of the existing iPhone carriers. Accordingly, she is not concerned with such developments having a negative impact on Apple Inc. (NASDAQ:AAPL)’s valuation.

Vodaphone Group Plc (NASDAQ:VOD) and Telefonica S.A. (NYSE:TEF) have indicated that they have halted iPhone subsidies for new users in Spain, a country in which they are the largest two carriers. While this is concerning to some analysts that see a potential trend developing, Huberty believes that this is an isolated event, with Spanish customer acquisition costs considerably higher than in the rest of Europe. Combined with the currently deteriorating economic situation in Spain, the Morgan Stanley analyst believes that this is an isolated event that reflects local operating conditions more so than a long-term trend of carriers refusing to subsidize the iPhone. “We believe all three US carriers that currently sell the iPhone are required under contract with Apple to provide specific subsidy levels,” Huberty indicated in her note to investors.

With estimated shipments of 25-28 million iPhone units in the second quarter of 2012, Apple Inc. (NASDAQ:AAPL) is currently deadlocked in a battle for the Smartphone market with current leader Samsung, who utilizes the Google Inc (NASDAQ:GOOG) android platform.

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