Research firms and investment
banks are welcoming a move that would see Wal-Mart carry the iPhone
later this year, but warn that a special $99 model would stand in
contrast to the company's proven strategy while also presenting
unnecessary risk.
"We believe a $99 iPhone would be atypical of Apple's premium brand
strategy," UBS Investment Research analyst Maynard Um told clients in a
research note. "More likely is a scenario in which select Wal-Mart
(& possibly Sam’s Clubs) are simply added as further iPhone
distribution points (like Best Buy)."
The analyst recognized that a cheaper iPhone model could stimulate
incremental demand, but said it would also cannibalize sales of both
the 8GB and 16GB models and, to a lesser extent, the iPod touch.
More specifically, he estimates that sales of a $99 4GB iPhone
would cut into Apple's fiscal year 2009 per-share earnings estimates by
about 27 cents, requiring the Wal-Mart deal to generate sales of an
incremental 1.5 million units to offset the impact.
Over at Barclays, analyst Ben Reitzes noted that a move intro Wal-Mart
could help boost December quarter iPhone sales, as Apple would need to
fill the discount chain's supply channel with handsets, which the
iPhone maker in turn recognizes as sales. However, he too believes
rumors of a $99 model will prove inaccurate.
"It is not like Apple to offer one special SKU for one non-Apple
retailer, confusing views on pricing and driving traffic away from its
own stores," the analyst told clients. "We believe it is more likely
Apple will allow Wal-Mart to sell existing SKU’s at prices it desires
(likely a small discount)."
Reitzes, who estimates Apple will sell 4.5 million iPhones during the
December quarter, said the company is likely to expand its iPhone
product line in 2009, potentially up-scaling with a 32GB iPhone version
early in the year and offering a smaller, less expensive form factor
down the road that plays better in "pre-paid" markets.
Pacific Crest analyst Andy Hargreaves also commented on the immediate
benefits Apple would see by padding Wal-Mart with inventory. Should
each of the discounter's stores received 150 iPhones before the end of
the year, it would add approximately 540,000 units to the company's
December quarter sales, he estimates.
Hargreaves pointed to a recent study that suggested iPhone 3G has seen
its strongest growth from consumers that make between $25,000 and
$75,00 per year. As such, he believes a high percentage of Wal-mart
customers are potential iPhone purchasers.
With the weak economy driving traffic to Wal-mart stores over specialty
stores, sales of iPhones at Wal-mart could help offset potentially
weaker sales at AT&T and Best Buy stores, he said.
Hargreaves is currently modeling Apple to sell about 5 million iPhones during the December quarter.
