Final Thoughts: Gene Munster Concludes His Coverage Of Apple

In his farewell coverage note on Apple Inc. AAPL, famed Piper Jaffray analyst Gene Munster offered his views for the next five years. After a career spanning over two decades, Munster is set to leave the firm to start a venture capital firm.

Unit Growth, Innovation — Twin Investor Preoccupation

While noting that unit and innovation have been the primary concerns of an Apple investor, Munster said he thinks iPhone 7 will have better-than-expected unit growth for the March quarter and the June quarter. The analyst believes Apple's 10th anniversary device will be compelling enough to sustain high single-digit to low double-digit growth.

The optimistic expectations despite the lukewarm smartphone market were attributed to the growing wave of three-year-old or older iPhones, which are estimated to reach 300 million unit sales during the iPhone 10 cycle next year. For 2018, Munster estimates around 170 million iPhone 10 units.

Munster thinks Apple is trying to transition into a services company, with the 24 percent year-over-year growth in services in the September quarter touted. In order for investors to accept Apple as a services company, the analyst thinks the company should derive at least 50 percent of its revenues from services. A 30 percent revenue share from services would be needed for giving it more credit for it being a higher margin segment.

Unique measures to help Apple grow as a services company include:

• Accepting a lower profit margin on hardware by selling the low-end device.
• Sell a bundled hardware/software package direct to consumers.

Overall, Munster said he is confident the management team will figure out the best forward path to optimize the services story.

Olson To Take Over From Munster

Munster also took the opportunity to pass on the baton to Mike Olson, who worked with him on Apple between 2004 and 2010.

Piper Jaffray has an Overweight rating and a $155 price target for the shares of Apple.

Apple shares closed Friday trading up 0.13 percent at $115.97.