What to Expect When You're Expecting Apple to Rally in 2012

With the historic year that Apple (Nasdaq: AAPL  ) has had, what can we look forward to next year?

There's no shortage of speculation thanks to Cupertino's sleepless rumor mill. I've covered some of the ideas, but there are plenty more possibilities to entertain, some of which have been broached more recently. There are some reasons Apple might not rally in 2012, but I still think it's a buy.

Some are also continuing to call for a dividend, and while I think there are better uses for its dollar mountain, giving some back to shareholders is possible under Tim Cook, unlike with Steve Jobs.

Back to the future
Fellow Fool Rick Munarriz made some predictions back in 2009. He nailed it with Cook, who took the lead four months ago. The iPod business is indeed shrinking, and while Apple launched iTunes Match, an iTunes music subscription service, as predicted, it only leveraged its Lala acquisition. The iPhone continues to be the growth driver, and Apple never bothered with netbooks, instead responding with the iPad.

Retina displays for everyone!
The iPhone 4's high-resolution Retina Display caught me off guard in 2010. I initially didn't think much of it -- until I got my hands on it. Now I can never go back. The iPad 3 is widely expected to carry a Retina Display, but there are even hints that Apple will bring high-resolution to Macs, since OS X Lion has hidden "HiDPI" (high-resolution dots per inch) display modes.

"Next generation of MacBooks"
Apple was surprisingly upfront when it introduced the redesigned MacBook Air in October 2010. It called them the "next generation of MacBooks" and said, "it's really the future of the notebook." The MacBook Pro lineup is potentially set for a major redesign, and Apple might add a 15-inch version to the Air family. DigiTimes has suggested that a Retina Display 15-inch MacBook Pro is set for the second quarter, carrying a resolution of 2880 x 1800 (doubling each dimension of the current 1440 x 900).

The most obvious progression is that they will continue to get thinner. It's practically a shoo-in that Apple will transition all Macs to custom-designed enclosure-free flash storage, given the success of the MacBook Air. Its recent acquisition of an Israeli flash-memory specialist is more than a hint.

Next year, I'm expecting Apple to begin transitioning all Macs, starting with laptops, to all SSD and Retina displays, while continuing to make them thin enough to cut food with (just because you can doesn't mean you should).

iPads for everyone!
There's a good chance that Amazon.com's (Nasdaq: AMZN  ) assault from below will spark Apple to broaden the iPad lineup and include a lower price point. Early estimates pegged the iPad market share near 75% this year, but research firm IDC believes that may fall to less than 60% in the fourth quarter, because of the relative success of the Kindle Fire and Barnes & Noble (NYSE: BKS  ) Nook family.

Other Google (Nasdaq: GOOG  ) Android tablets that have gone head-to-head with the iPad, like the Motorola Mobility (NYSE: MMI  ) Xoom, have always come back with their tail between their legs. The only success stories come at low price points, like with Hewlett-Packard's (NYSE: HPQ  ) $99 TouchPad.

Expanding the iPad to lower price points in defense might promptly quell the uprising. There are a few routes Apple may take. It may simply offer the previous-generation model at lower prices, as it has done with the iPhone, or it may even go with a 7-incher, despite Jobs' previous assertion that the 7-inch form factor is "dead on arrival." I think we'll see the iPad 2 move down in price instead of a 7-inch model.

Enough about products; get to the bottom line
Last fiscal year, Apple cleared $108.2 billion in sales, a 66% jump. On average, analysts estimate revenue of $139.4 billion for the next fiscal year. I think they're underestimating Cupertino as usual. The Street is estimating 127 million iPhone and 54 million iPad units.

That iPhone estimate is too low, representing 75% growth, compared with the 93% and 81% shown over the past two years, respectively. I'm going to project 85% growth, which is even conservative given how fast the 4S is flying. That gives us about 134 million units.

Average selling prices have been rising, from $629 to $651, when retail prices of the iPhone were $599 and $699. All prices have been bumped up by $50, and a third 64 GB tier introduced, putting the price points at $649, $749, and $849. An ASP of $700 is the low-end scenario, and I think $750 is more likely.

That brings iPhone revenue alone up to $93.8 billion to $100.5 billion.

The iPad is harder to forecast, since it's so new and its 334% unit growth comes off such a small starting point. If we take the Street's 54 million-unit estimate and the average iPad ASP over the past two years of $646, that's another $34.9 billion in sales. The ASP could go down if Apple introduces the lower prices we've already talked about.

Mac sales have risen 26% and 25% over the past two years. If that trend continues, they'll bring in $27.3 billion in revenue next year. Researcher Canalys even expects Apple to become the world's top PC vendor by shipments, if you include the iPad, in the first half of 2012.

Even with the low iPhone estimate, that brings us to $156 billion in sales already with just the three largest segments, and before adding in iPods, iTunes, App Store, iBookstore, Mac App Store, and Peripherals, which combined were about $19 billion last year.

While these are very approximate estimates, they show that bringing in $160 billion to $170 billion in sales next year is entirely within reach (and much higher than the $139.4 billion consensus) if Apple resumes its tradition of destroying all estimates.

Suddenly, a trillion-dollar market cap also seems like it's just around the corner.

Speaking of 13-digit figures, the mobile revolution is also set to become The Next Trillion-Dollar Revolution, thanks in part to Apple. There are lots of companies that are set to cash in on it, but one in particular has excellent prospects. The company is one of few players that will help power the mobile devices of the future, and it also has exposure to the explosive growth in China. As bullish as I am on Apple, I'm also bullish on this stock, and I've given it an "outperform" CAPScall. Get access to this 100% free report to find out what company I'm talking about!

Fool contributor Evan Niu owns shares of Apple and Amazon.com, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Apple, Amazon.com, and Google. Motley Fool newsletter services have recommended buying shares of Amazon.com, Apple, and Google and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (12)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 24, 2011, at 8:23 PM, ConstableOdo wrote:

    Trillion dollar market cap seems rather unlikely. Apple is already considered overvalued, overbought and too expensive by investors and trails ExxonMobil in market cap by around $30 billion. All the claims are that Apple is already too big in terms of market cap to grow any larger based on the law of large numbers or something of the sort. Most of the hedge funds and institutions already claim that Apple has no more growth potential and Wall Street gives Apple a growth rate of 2% over the next few years. Does it really sound like Apple is being given the vote of confidence of being a trillion dollar company?

  • Report this Comment On December 24, 2011, at 8:56 PM, H3D wrote:

    "Most of the hedge funds and institutions already claim that Apple has no more growth potential and Wall Street gives Apple a growth rate of 2% over the next few years. Does it really sound like Apple is being given the vote of confidence of being a trillion dollar company?"

    That would explain why Apple is the most widely held equity with hedge funds?

    Wall street gives Apple a 30% growth this year, but they always do ahead. Last years growth was ~ 85% Q1 looks like being > 90%.

  • Report this Comment On December 25, 2011, at 4:19 AM, Lcm123 wrote:

    Ouch! hehe, H3D you really nailed ConstableOdo in the coffin on that one.

  • Report this Comment On December 27, 2011, at 8:29 PM, hiddenflem wrote:

    Constable-Apple is also considered undervalued by many or most analysts...certainly by many valuation metrics it is undervalued. I wouldn't get too caught up in thinking that a trillion dollars by itself means anything...

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