The above-market growth trajectory of Apple Inc.’s iPhone is expected to get a boost from its adoption of CDMA networking technology.
Building on its GSM base at carriers such as AT&T, the company’s initial penetration of the CDMA smartphone market kicked off in February when the iPhone became available at Verizon in United States.
While JP Morgan believes that opportunity could produce US$6-billion in revenues in 2012 in addition to another US$3-billion in non-Verizon CDMA penetration, analyst Mark Moskowitz thinks the Asia-Pacific region will be the next growth area for iPhones using CDMA.
Apple has already started to move beyond Verizon in its CDMA pursuit. On March 16, it began selling the iPhone in South Korea through SK Telecom.
Mr. Moskowitz expects Apple will next pursue China, India, Japan and South Korea for CDMA penetration since these regions possess higher rates of smartphone usage and consumer bases with rising economic statures.
Research firm IDC expects smartphone adoption in the region to rise 40% between 2009 and 2012, outgrowing all others.
“In our view, a multi-network capable ‘world’ phone (GSM and CDMA) from iPhone could further enhance the growth contribution from this region,” the analyst said in a note to clients.
He forecasts Apple will ship 10 million CDMA iPhone units and capture 10% of the non-Verizon market in calendar 2012.
Asia-Pacific has been a major contributor to iPhone growth. In Apple’s December 2010 quarter, the region drove 37% of the iPhone’s year-over-year growth and that trend is expected to continue.
Apple remains one of JP Morgan’s top picks for 2011 with an overweight rating and US$450 price target.
The stock currently trades at 13.1x the firm’s 2012 earnings per share estimate, compared to 12.6x for its peers. Mr. Moskowitz expects this valuation premium to expand, adding that Apple is trading well below its 3-year average of 19x.
“In our view, Apple is trading like a value stock and not as the high-growth story in large cap equities,” he said.