Yes, we thought so too – how can a puny little phone (granted, it is the new iPhone 5) make a dent in the economic growth of the world’s largest economy? Right?
But just as we were about to toss this particular piece of research to where we thought it belonged, we realised that it came straight from the desk of Mr J.P. Morgan Chase.
Okay not Mr J.P. Morgan Chase himself (although that would be uber cool considering that no such ‘person’ exists) but from Michael Feroli, the Chief US Economist at J.P. Morgan Chase Bank. We found that credible enough for us to give it a read-through.
This is what Mr. Feroli has to say in his note: “We believe the release of iPhone 5 could potentially add between ¼ to ½ percentage-point to fourth quarter annualised GDP growth.” Guess how much is the US GDP (don’t cheat by looking at the headline please): $15,090,000,000,000. That’s $15.09 trillion.
That was actually in 2011. It should grow to about $15.8 trillion by the end of 2012. Wow! 8-O
Mr Feroli (his equity analyst, actually) believes that Apple will sell around 8 million iPhone 5 units in America in the fourth quarter of 2012. We’re already drooling, but remember that this 8 million is the number of new iPhone 5 units that Apple is expected to sell in just America – and in two months and 10 days (the device won’t be in stores until September 21, remember?).
Back-of-the-envelope calculations then suggest that Apple should ship about 12 million units from its factories in China and elsewhere to markets across the world (including the US) in the last quarter. That’s a lot of units to ship.
Now, going by J.P. Morgan Chase’s estimates, all this will happen “while sales of previous generation iPhones are maintained at a solid pace.” We’re not sure about that fact, actually, since sales of the 4S will, logically, slow down as the 5 becomes available. But whatever.
Also, the bank estimates the new smartphone to retail at about $600 apiece. This may be debatable, especially since telecom operators will absorb part of the cost and bundle the phone with their packages. But let’s assume that that will be the average retail tab of the phone – whichever way it is split between the end-customer and his service provider.
The nuts-and-bolts of the research arrive at the fact that, after deducting about (estimated) $200 worth of imported components in the phone, it will add $400 as ‘trade margins’, which get added to the GDP. So, $400 multiplied by the number of units sold in America (8 million) gives us $3.2 billion boost to GDP in the fourth quarter. Annualised (i.e., multiplied by four), that means a $12.8 billion boost to the US economy.
And that’s just from the US sales – there will be profits that will be repatriated back to Apple headquarters from sales made elsewhere. We don’t know about the US GDP growth projections, but this certainly means that Apple’s bottom line will definitely get a big boost. Time to bite the AAPL?