Apple Begins Production Of iPhone

Apple Computer (AAPL) continues to say nothing about its cell phone plans, but news about the much discussed iPhone continues to leak. This morning, Prudential’s Jesse Tortora asserted that “the production ramp has already begun” in small quantities for an Apple slim phone to be available for sale late in the first quarter of next year, or early in the second quarter. Tortora expects a smartphone to follow 1-2 quarters later, “likely” in the third quarter.

He also expects Apple to produce a music phone and a wide-screen iPod. In fact, he believes Apple is planning volume production of a widescreen iPod for the calendar first quarter of 2007, with an introduction late in the first quarter or early in the second quarter.

Tortora says he expects Apple to sell 7 million iPhones in calendar 2007 and 15 million in 2008, contributing 8 cents a share to earnings in fiscal 2007 and 29 cents in fiscal 2008.

Meanwhile, Tortora says there is “new evidence that Apple has hired video game designers,” which he says suggests that “Apple may have interest in entering the video game market longer-term.”

Tortora lifted his profit forecast for the September 2007 fiscal year to $2.73 a share from $2.61, in part based on anticipation of iPhone sales. To date, while many analysts have talked about the iPod, and its potential contribution to earnings, not many have started including it in their forecasts; and it is unusual to see an analyst include the contribution from an unannounced product in earnings estimates. Bold move, and one which suggests a new round of Apple estimate increases is coming, assuming all the buzz about the iPhone is right.

Tortora also increased his price target on the stock to $87 from $74, which would seem like a big jump is not for the fact that the stock is already above even his new target price. As you will not be surprised to learn, Tortora has a Neutral rating on the stock.

Meanwhile, in a separate note, Prudential semiconductor analyst Mark Lipacis says that Broadcom (BRCM) is a “potential candidate” for the MP3 chipset socket in the iPhone, which he says would partially offset Broadcom’s absence in the next generation Apple video iPod. He thinks the iPhone could generate $50 million in revenue in 2007 for Broadcom, and $100 million in 2008.

Lipacis also said that Intel (INTC) is a “potential candidate” to supply NOR Flash memory for the Apple phones.

Lipacis continues to rate Intel Underweight and Broadcom Overweight.

AAPL 1-yr chart:

Comments

[Tom B]

"Meanwhile, Tortora says there is “new evidence that Apple has hired video game designers,” which he says suggests that “Apple may have interest in entering the video game market longer-term.”

I would anticipate they'd be modding the Mac Mini or iMac to be top-notch gaming machines rather than getting into the evolutionary dead-end of dedicated game consoles. I hope AAPL can gain some traction here, but I have doubts. There big problem with regards to games is simply that PC's get more attention from developers because of the disaparate marketshare. Which is a shame for a number of reasons not the least of which is the fact that developing Mac software is said to be much easier than developing Windows software on account AAPL's "Cocoa" (OPENSTEP-based) programming API's.

[BillyJackson]

it will be interesting to see how the iphone sells. Like the ipod or will it not be popular and send apple's stock price plummeting?

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