The Mobile Internet Report Key Themes*

Scenarios for Apple iPhone Market Share Potential
iPhone Business Alone Could Be Worth [$108-346B] (1)
F2009
Current Model
Base Case
Bull Case - Broaden
distribution: Stable
Subsidy / Modest BOM
Decline
F2012
Bull Case - Broaden
to low-end: Half
Subsidy / Average
BOM Decline
Bull Case - Market
Leadership: No
Subsidy / Aggressive
BOM Decline
iPhone price to consumer $200 $99 $99 $99 $99
Average subsidy 400 387 400 200 -
Assumed annual BOM decrease 1% -10% -15% -33%
iPhone costs 240 248 206 152 75
iPhone gross Margin 60% 49% 59% 49% 24%
iPhone gross Profit 7,463 14,885 43,985 33,026 11,524
iPhone device revenue $12,439 $30,664 $74,850 $67,275 $47,916
iPhone shipments 21 63 150 225 484
iPhone installed base 32 116 255 360 726
Global handset share 2% 4% 10% 15% 33%
Other iPhone revenue $976 $3,570 $7,457 $9,892 $38,265
Other revenue per iPhone $30 $31 $29 $27 $53
Total iPhone revenue $13,415 $34,234 $82,307 $77,167 $86,181
Gross profit margin 61% 51% 60% 53% 44%
Operating margin 46% 39% 52% 45% 36%
Total iPhone EPS $4.90 $10.04 $32.04 $25.63 $22.90
iPhone business valuation (12x F2012 EPS) $98 $120 $385 $308 $275
iPhone revenue % of total apple 31% 45% 67% 65% 68%
iPhone business valuation as % of
current Apple share price ($195) 50% 62% 198% 158% 141%
Note: (1) based on valuation of $120-385 per share and 899.8 shares. Valuation is per share, based on 2009 P/E of 20x
173
and 2012 P/E of 12x. Apple shares closed at $194.67 on 12/11/09. Source: Apple, Katy Huberty, Morgan Stanley Research.