Apple 2.0

Covering the business that Steve Jobs built

Mac growth heading overseas

May 27, 2010: 10:59 AM ET

Apple's next sweet spot: Overseas sales of PCs in the $700-$1,119 range

Photo: Apple Inc.

"We believe that Apple's Mac business has plenty of revenue growth left in the tank," write J.P Morgan's Mark Moskowitz and Anthony Luscri in a "Quick Thought" note to clients issued Thursday. Its focus is on overseas sales of a product line that has been overshadowed lately by the iPhone and the iPad.

Specifically, they believe Apple (AAPL) has opportunity to add an incremental $5 to $7 billion to its revenue stream by increasing its international market share in what they call the Target Zone: Mid-range PCs with an average selling price between $700 and $1,119.

They note that while Apple has been outgrowing the rest of the PC market by a factor of 2 to 1 over the past three years, most of that growth has been in the high end of the U.S. market.

And although Apple has been making inroads in the Target Zone -- its U.S. share in 2009 was roughly 22% -- it currently has only a 2% share of the mid-range market overseas.

That could change quickly, the authors write, as Apple steps up its retail efforts in Europe and the Far East. More than half of the stores Apple is planning to open this year will be outside the U.S. It has already announced plans to increase its retail presence in China over the next few years from one Apple Store to 25.

"Even if the company only gets half way overseas to where its market share is in the U.S. [i.e. from 2% to 10%]" write Moscowitz and Luscri, "the revenue opportunity in the Target Zone measures in the billions."

They estimate that every market share point gained in the Target Zone is worth $889 million in additional revenue.

J.P. Morgan rates Apple "overweight" with a price target of $316. The stock closed at $253.35, up $9.24 (3.79%) for the day.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Join the Conversation
About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

Email | @philiped | RSS
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.