Will Apple at $1,000 Become a Reality?

Piper Jaffray analyst Gene Munster has been an Apple (NASDAQ:AAPL) proponent for years. He was the first one to predict that Apple stock was headed toward the $1,000 mark, which would make it the first U.S. company worth $1 trillion. In a recent note to investors, Munster reiterated his price prediction, with 10 reasons explaining his position. Apple closed at $565.32 on Thursday.

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Product roadmap: Apple’s “ability to innovate” will be proven again in new products as well as updates to its core lines. Munster thinks updates to the MacBook line could come within the next six weeks and considering that it would be the “first meaningful Mac update in over a year,” sales will zoom. Munster also believes in both a smaller iPad as well as the rumored high-definition television.

iPhone upgrade: Munster thinks a massively upgraded iPhone, with a “completely redesigned body style,” will be launched soon, with there being a high probability of a 4-inch screen, an upgraded processor, and LTE capability. He also thinks Apple can beat Qualcomm’s (NASDAQ:QCOM) chip shortage simply by taking most of what is available. He is predicting an 80 percent chance of Apple hitting the 49 million iPhone unit sales forecast for the December quarter.

Apple television: Munster thinks the much-discussed Apple TV could be announced in December this year, helping “freeze the market” of prospective buyers during the holiday season. He predicts a 42-55 inch screen size, interface control through a mobile app, and voice-control through Siri. He thinks it will be priced between $1,500 and $2,000, and will take 10 percent of the market within 1 to 3 years of its launch.

Subsidies continue: Munster believes iPhone subsidies will stay pretty much unchanged for the next 2 to 3 years, since the market share of AT&T (NYSE:T) and Verizon (NYSE:VZ) was tilted heavily toward Apple. He thinks Apple will have choices of taking on second- or third-place carriers even if the wireless market were to drop subsidies. Munster thinks consumer demand will ultimately prevail in having subsidies continue.

Gross margins: Munster thinks that with a large reliance on the iPhone, Apple will maintain gross margins above 40 percent over the next three years. Munster believes that gross margins for Apple’s smartphone are in 60 percent range, much higher than those for the iPad (estimated at 40 percent) and the Mac (25 percent).

“Heart transplant”: Munster calls Apple’s strategy of phasing out older products a “heart transplant” strategy, and he says that keeps it ahead of the curve at all times. He thinks Apple will keep offering two older iPhone models and one older iPad alongside current-generation products.

China boom: Munster thinks China will drive sales, with iPhone shipments to the country remaining robust because of growing middle class and the current under-penetration of smartphones in the country. He does not think the China growth curve will mirror that in the U.S. “While the US saw a 34 percent quarter-over-quarter slowdown in iPhone activations following the launch quarter, we do not believe China will follow the same path,” he said.

Tablet beats the PC: Munster expects the tablet market to eventually outgrow the PC market, with Apple reaping the rewards. He thinks the company will sell 66 million iPads this year, which will be two-thirds of the projected tablet market. In 2015, Munster believes Apple will sell 176 million iPads out of a total of 301 million and expects tablets to surpass PCs by 2020.

Enterprise strategy: Munster thinks Apple’s reliance on consumer adoption to lead to enterprise adoption will work, and expects the high consumer desire for the iPhone and the iPad to transfer over to the corporate level. However, the Mac may not enjoy the same amount of success in the enterprise for its reluctance to support older OS versions.

Services: Munster writes that Apple’s iTunes, the App Store, and iCloud are robust products that will help enhance the Apple ecosystem. “We note that with 225+ million registered iTunes accounts and 125+ million iCloud accounts, Apple has one of the largest registered user based in the tech world,” he wrote.

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