Apple 2.0

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Morgan Stanley's 'bull case' for Apple: 80 million iPhones, $500 per share

November 3, 2010: 10:44 AM ET

Analyst sees China's growing middle class as the underappreciated driver of future growth.

Click to enlarge. Source: Morgan Stanley

Morgan Stanley's Katy Huberty, whose Apple (AAPL) forecasts have turned increasingly bullish in the past year (see Morgan Stanley drinks the Apple Kool-Aid), has issued her most optimistic report to date.

In her "bull case" scenario, Apple ships 80 million iPhones and 40 million iPads in calendar 2011, driving its stock to $500 a share by next August.

Apple closed Wednesday at $312.80, up $3.44 (1.11%) for the day.

The key to Apple's future growth, according to Huberty: 50 million Chinese, many of them urban, college-educated baby boomers from single-child homes with access to their parents' savings, good pension plans and a taste for "aspirational brands" like iPhones, iPods and iPads.

Apple, Huberty writes, is on a trajectory in China similar to BMW (BMW.HM), an aspirational car for a developing country if there ever was one.

"Despite the lack of financing and overall lower average income," she writes, "China will account for 11% of BMW revenue and 17% of OpInc this year, according to our European auto analyst Stuart Pearson, due to a 4x increase in dealers over the past five years."

Among the signs that Apple is making similar investments in distribution and could be headed for a similar trajectory, she cites:

  • Apple will open 25 stores in two years (Feb '10) and today China stores are the highest traffic of any Apple stores (Oct '10). Apple views company owned stores as both a sales and branding/advertising channel.
  • Apple added 800 points of distribution in China. Revenue grew 200%+ Y/Y (Apr '10).
  • Apple reseller plans to open 100 premium Apple stores, called Studio A, in China over the next three years (Jun '10).
  • China Unicom began selling iPhone 4 (Sept '10) and iPad (Oct '10).
  • China Mobile announced the availability of Micro SIM cards for the iPhone 4 and iPad, (Oct '10).
  • Potential CDMA iPhone for China Telecom (timing uncertain).

Huberty hedges her bets, as usual, with a "base case" scenario (72 million iPhones and 30 million iPads) and a 55M/25M "bear case."

But her 80M/40M bull case is hardly out of line on Wall Street, where Apple seems to be this season's favorite Kool-Aid flavor. On Tuesday, Wedge Partner's Brian Blair made headlines predicting that Apple would sell 100 million iPhones and ship 45-48 million iPads next year.

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[Follow Philip Elmer-DeWitt on Twitter @philiped]

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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.

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