Apple: Gene Munster's 10 Reasons To Stay Bullish

Piper Jaffray analyst Gene Munster in a new report offers up a list of 10 reasons to stay bullish on Apple shares as investors look ahead to the next three years. Eventually, he thinks, the stock is headed to $1,000.

Munster, a long-time Apple bull, has an Overweight rating and $910 target on the stock. He's not adjusting his target or estimates with this report, but he does provide a detailed case for his view that "the company will continue to benefit from consumers' increasing desire for mobile devices."

Here's a condensed version of his list:

• 2012 Product Roadmap Will Demonstrate Apple's Ability to Innovate:  He expects "meaningful" updates to both the iPhone and the Mac. He also expects a TV to be announced at year end for shipment in 2013. On Macs, he thinks there are updates coming in the next 6 weeks, with wider use of retina displays and the adoption of Intel's Ivy Bridge processor line. He sees a smaller iPad coming in early 2013.
• iPhone 5 Will Be A Major Upgrade: Munster expects "the biggest consumer electronics product launch of 2012 as well as the biggest device upgrade cycle in smartphone history." He thinks the next iPhone will have "a completely redesigned body style, which may more closely resemble the metallic rear panel of the current iPad." He sees a 60% chance the new phone has a screen 4 inches or larger, versus the current 3.5 inch screen. He also expects the new phone to include  4G LTE, upgraded processor and memory, and a higher megapixel camera.
• The TV Is Coming Next Year: "Looking to new products, we  continue to expect Apple to ship a television set in 2013," he writes. Munster thinks Apple could unveil the product as soon as December, freezing the market for consumers shopping for new TVs. He's expecting a price in the $1,500 to $2,000 range, with a screen size in the 42-55 inch range. He expects a user interface controlled by an iPhone or iPad, Siri-based voice controls and access to the App Store for games and music. He thinks the company can capture 10% of the TV market 1-3 years after launch.
• No Near-Term Change Likely On Phone Subsidies: "We believe  that subsidies on the iPhone are likely to continue over at least the next 2-3 years," Munster writes. He notes that the iPhone has the lowest churn of any mobile device - and that consumers want the iPhone, lowering customer acquisition costs. Munster says he thinks there will always be carriers willing to provide subsidies in the event a market leader were to choose to eliminate them. "Net-net, we do not  expect the subsidy question to go away, but are confident that subsidies will remain a part of iPhone sales in the coming years," he writes.
• Apple Can Keep 40%+ Gross Margins For Years: "Over  the next three years, we believe Apple will be able to maintain gross margin levels  of 40%+, which will be assisted by iPhone becoming a larger part of total sales," he writes. Munster estimates the iPhone has 60% gross margin versus the iPad at 40% and Mac at 25%.
• "Heart Transplant" Strategy Allow Apple To Benefit From Scale: "One  of Apple's key product philosophies is the 'heart transplant' strategy where the  company tries to eliminate old products from its offering as quickly as possible," he writes. "We believe this strategy is a key factor in the company benefiting from scale of producing a streamlined product line, which in part could enable the company to secure the best component prices possible which translate to higher margins. We  believe that in the mobile device space, the 'heart transplant' strategy will continue  to include offering the two most recently updated iPhones and the most recently updated iPad at discounted prices (i.e. iPhone 5, iPhone 4S, and iPhone 4)."
• China:  Munster says Apple sold 8-9 million iPhones in China in the March quarter, versus 9.5 million activations and 1 million units of channel fill in the U.S. "While the U.S. saw a 34% quarter-over-quarter slowdown in iPhone activations following the launch quarter, we  do not believe China will follow the same path," he writes. "This quick drop off in the U.S. in March, along with pre-iPhone 5 slow down has lead most investors to conclude  there is risk to the Street’s 29 million iPhone unit estimate for June. "Overall, we believe iPhone and iPad sales will  remain strong in China, driven by the growing middle class," he writes. "We expect this  growing middle class and under penetration of smartphones in China compared to  the rest of the world will enable China to continue to demonstrate healthy  smartphone growth."
• Tablet Opportunity Bigger Than PC Market:  For calendar 2012, he sees sales of 66 million iPads, two-thirds of a projected market of 99 million in total tablet units. The PC market this year is expected to be 371 million units, according to IDC. Eventually, Munster contends, the tablet market will be bigger than PCs. By 2015, he thinks Apple can sell 176 million iPads of a total tablet market of 301 million units. "Through 2015, we believe Apple will maintain its market share lead in tablets and have heard tablet competition likened to iPod competition in the early days of the iPod (XYZ is coming, which will kill the iPod).," he writes. "For 2015, IDC estimates PC sales at 484 million. Thus the gap will be significantly  closed between tablet and PC unit sales by 2015. We believe tablets could overtake  PCs before 2020."
• Enterprise Sales Will Be Pulled By Consumer iPhone And iPad Adoption: "We believe that Apple thinks about the consumer and enterprise opportunities as significantly different verticals," he writes. "If Apple's intent was to dominate the enterprise markets, we believe the company would employ a meaningfully different sales and marketing strategy. However, we believe the company is focused on delivering the best consumer electronic products possible and therefore will rely on consumer adoption to drive enterprise adoption."
• Services Will Enhance The Ecosystem Rather Than Contributing Profits: "As Apple has previously stated, the company runs the iTunes store at just above break-even," he notes. "We believe the same general strategy applies to the App Store and will ultimately apply to whatever larger content initiative Apple undertakes to support the Apple Television. Apple has begun work on a third datacenter in Oregon, which we expect to open on a faster timeline with a smaller, scalable facility than the most recently opened North Carolina datacenter. We note that with 225+ million registered iTunes accounts and 125+ million iCloud accounts, Apple has one of the largest registered user bases in the tech world."

AAPL is down $2.73, or 0.5%, to $562.59.