Apple signs iPhone deal with European Carriers in UK, France, Germany

Apple Inc. (AAPL) has reportedly signed three separate distribution deals in Europe for the iPhone. The company has signed up three providers in three different countries - France, United Kingdom and Germany. Investors of Apple have known that a European deal was inevitable so what is the next step for company shares?

Apple's own targets for iPhone were 10 million in sales in Calendar 2008, and this included expectations of being in Europe and Asia throughout the year. So do investors sell the news here as the expectation is that the announcement will be made official at the end of next week at a European conference. The analysts following the company echo my own bullish sentiment regarding the company. The deals with T-Mobile in Germany, Orange in France and O2 in the U.K. are simply a starting point for worldwide iPhone expansion. An expansion that seems to be well on track to not only meet but beat sales expectations. Analysts reports recently on the company track U.S. iPhone sales expectations as well ahead of the stated 1 Million sales goal by the end of the current quarter.

The bigger news for shareholders of Apple with these deals is the terms that Apple was able to secure. A full 10% of voice and data revenues from iPhone customers. This is unprecedented in the wireless industry and it just shows how much of a game changing product Apple and the carriers themselves believe that the iPhone is. Since Apple is able to guarantee steady device sales revenue for the carriers it has the clout to negotiate a bigger pie of the usage revenues. It is well known now that the iPhone sells without any subsidy either at carrier stores or Apple's own retail stores and as such the expectation of a price drop on the handset, regardless of contract, for consumers is virtually nil. This revenue sharing plan that Apple gets from the carriers will become increasingly important to a sustained bottom line for the company and as such will provide Apple with predictable, growing and steady cash flow.

It has been speculated that Apple receives somewhere around 7-10 dollars per month per user from AT&T and with this 10% deal in Europe investors should expect the same influx of cash. When Apple meets its sales goal for the end of 2008 the company will be looking at over 10 million iPhone users netting the company in the neighbourhood of $100Million in monthly revenues, which comes with it a nose-bleed type high margin. That's a significant influx of cash that is as of yet difficult to model for analysts given the company changes to subscription accounting. Through this next phase of Apple growth shares of the company can continue to command P/E ratios and forward P/E ratios in the mid-high 30s and high 20s respectively. In the years to come this can effectively turn a $100Billion electronics juggernaut into a Microsoft sized market entity. Apple shares have fallen some $30/share from their 52 week high with the entire market, but have started to regain some losses. In the months ahead technology sizzles and Apple with its continuous schedule of announcements and innovations will likely be one of the first in line to provide market beating returns.

Disclosure: Author is long AAPL