Apple (AAPL) iAnywhere Could be a Game Changer

JPMorgan's analyst Rod Hall updated and extended his Apple (NASDAQ: AAPL) iAnywhere thesis Tuesday, which he said could represent a >10% earnings boost to the company in a 12-24 month timeframe. Hall sees the company cannibalizing its MacBook Air line in the next 12 months and possibly in 2014 as it converges its mobile products by adding a keyboard/mouse centric user interface to iOS while also keeping a touch friendly user interface.

Hall sees iAnywhere as an opportunity for Apple to get into the $63 billion/year $500-$1000 laptop market, where the company barely participates in today. Even adding tablet market to this market Apple only has ~20% share vs. 40% in >$1,000 laptops. "Our central assumption is that lower priced laptop buyers are not willing to purchase what amounts to an expensive tablet that doesn’t fully replace a laptop," he comments. The firm calculates Mobile PCs (laptops) in the $500-$1,000 price range made up ~55% of total shipments in 2013. This is equivalent to ~100m units of the 180m total laptops shipped in 2013. "Should Apple address this market through iAnywhere we believe it could rapidly grow share toward the 40% it currently has in >$1,000 laptops."

The analyst said one of the most compelling trends supporting the idea that Apple is likely to converge at least part of their laptop lineup with mobile products is the progress that A-series chips are making in terms of computing capability. "We calculate that the A-series has been rapidly gaining on i5 powered MacBooks over the last two years. In 2014, we believe that the next A-series chip (probably named the A8) is likely to surpass the computing power of current i5 based MacBook Airs.

Commenting on other breadcrumbs that could be pointing to iAnywhere, the analyst highlights:

• Reports of 13" iPad Air “Pro” in development: If Apple were to replace MacBook Airs with iPads we believe that the iPad lineup would need to be expanded. Currently the only size overlap is between the iPad Air’s 9.7" screen and the MacBook Air 11". A larger 13" iPad option would probably be needed to flesh out the iPad line.
• Patents supportive of convergence: Integrated Monitor and Docking Station Patent 7,684,185; Enabling Gestures on a detachable keyboard
• iOS7 changes suggest a shift: iOS7 added the ability to use a Bluetooth mouse with an iOS device in addition to a keyboard. As a result, all iOS7 products are now able to support a keyboard/mouse combo similar to a laptop computer. We are already able to make use of this IO paradigm within apps but find that iOS is sorely in need of a more desktop-like UI designed around a keyboard/mouse input mode as well as apps designed for keyboard/mouse usage. We also would like to see the multiple simultaneous window paradigm ported onto any device that we would end up using as a primary laptop. It is somewhat frustrating to attempt to rapidly switch back and forth between iPad apps when attempting to multi-task today.
• WWDC sessions converging: This may be a bit of a stretch but we note here that Apple’s WWDC developer sessions clearly shifted toward combined iOS/OSX technologies in 2013. This is likely partially due to the inclusion of many iOS technologies in OSX Mavericks. However, upon plotting this we found the size of the shift last year striking.

The firm maintained an Overweight rating and price target of $585 on Apple.

For an analyst ratings summary and ratings history on Apple click here. For more ratings news on Apple click here.

Shares of Apple closed at $523.47 yesterday.

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