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The International Trade Commission (ITC) has ruled that Apple violated Samsung patents and banned Apple imports to the U.S. of its offending products. Will that ban slice Apple's iPhone revenue by $1 billion?
The "good" news for Apple is that the ITC ban on imports -- which matters since Apple makes the affected products in Asia -- covers older versions of the iPhone and iPad. According to a June 4 ITC notice, the ban covers the iPhone 4 and iPad 2 3G sold for use on AT&T, T-Mobile and two regional networks -- one in Texas, the other in Alaska.
This ban does not take effect immediately -- and it could be lifted. That's because there is a 60- day review period for the ITC's ruling during which President Obama could decide to overturn it on public policy grounds, reports Bloomberg.
The ITC found that Apple had infringed a patent on a way for phones to transmit data. Apple argued that Samsung should have licensed its patent for this data transmission method because it was an industry standard but was only willing to give Apple access to that technology on "unreasonable" terms -- 2.4% of the iPhone and iPad average selling price -- according to Bloomberg.
At stake are portions of two huge Apple product lines. For the fiscal year ending September 2012, the iPhone generated $78.7 billion in sales and the iPad brought in another $30.9 billion, according to Bloomberg.
But how much revenue would the iPhone 4 and iPad 2 3G bans cost Apple? My crude estimate is at least $1 billion in revenue. That includes the loss of iPhone 4 sales in America -- I could not find figures to estimate the loss of U.S. iPad 2 3G revenues.
To reach this conclusion, I used estimates of how much of Apple's iPhone revenue came from the iPhone 4 (about 10%) and how much of those revenues were in the U.S. (roughly 30%).
My conclusion about the proportion of iPhone 4 revenues extrapolated from its first quarter 2013. According to a KGI Securities estimate, "Apple shipped 35 million iPhone 5 handsets, while iPhone 4S shipments reached 9.5 million and iPhone 4 channel sales hit 7.3 million."
According to Morgan Stanley analyst Katy Huberty, the iPhone 4 sells for $450 while the iPhone 5 16 GB version goes for $649. Multiplying those prices by the unit volumes yields $3.3 billion in iPhone 4 revenues, $6.2 billion for the iPhone 4S (assuming it also goes for $649) and $22.7 billion for the iPhone 5 in that quarter.
Applying this 10% to Apple's latest annual iPhone revenues means that Apple would lose a portion of $3.3 billion in revenue if the ITC ban went into effect.
I assumed that 30% of iPhone 4 sales are in the U.S. -- based on a Wall Street Journal estimate that "less than a third" of overall iPhone sales are in America. Multiplying 30% by the $3.3 billion in estimated 2012 iPhone 4 revenue yields $1 billion in possible lost revenue to Apple from the ITC ban on iPhone 4 imports to the U.S.
But that figure could be low if iPhone 4 sales rise in 2013 and beyond. Since many of my students have said that the iPhone 5 does not offer enough additional features to make it worth the price premium, I could see iPhone 4 sales rising.
However, if Apple replaced the iPhone 4 with a lower-priced model, as Huberty expects, American consumers would probably ditch the iPhone 4 for the cheaper model. And that would reduce the revenue lost due to the iPhone 4 import ban.
Update: PiperJaffray analyst, Gene Munster, estimates that the ITC's import ban will cost Apple $680 million.
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