July 3, 2014

A voice-messaging app could become a defining feature for Apple’s rumored iWatch smartwatch, UBS Securities analyst Steven Milunovich said in a research report Tuesday, while another analyst raised his price target for Apple stock.

Much of the discussion around Apple’s (NASDAQ:AAPL) expected wearable device has been focused on applications for tracking health and fitness. Health monitoring apps are still seen as an important selling point for the iWatch, but voice messaging could be just as big, Milunovich says.

At its Worldwide Developer Conference in June, Apple introduced voice messaging capabilities to its Messages app in iOS 8. With iOS 7, a message can be dictated, but it is sent and received as text. With iOS 8, users can touch a new microphone button and record a voice message, then swipe the screen to send it, Milunovich says.

“When we visited with (Apple CEO) Tim Cook, he said that walking down streets in China one sees people speaking into their phones sending voice rather than text messages,” Milunovich said. “Porting this capability to the watch makes sense as it is easier to send a voice message from a device already on the wrist than pulling out a phone. It also could aid penetration of China, which Cook said has a ways to go.”

Still, Milunovich has set conservative estimates for iWatch sales. Some analysts are looking for Apple to sell 40 million to 50 million iWatch units in the first year, assuming that 10% to 15% of iPhone users will buy an iWatch. But Milunovich is targeting 21 million iWatch unit sales in fiscal 2015 (ending on or near Sept. 30, 2015) and 36 million uits in fiscal 2016, at an average selling price of $300.

Milunovich rates Apple stock a buy, with a price target of 100. Apple stock was up 1%, near 94, in morning trading in the stock market today.

Meanwhile, BTIG analyst Walter Piecyk raised his price target on Apple stock to 112 from 86 on higher iPhone and iPad sales estimates.

Policy changes by U.S. wireless carriers such as AT&T (NYSE:T) and Verizon (NYSE:VZ) will help the iPhone upgrade cycle, he said in a note Tuesday. More carriers are encouraging subscribers to lease their smartphones rather than pay upfront for subsidized handsets.

“We expect upgrade rates to rise as leasing programs enable customers, currently on contract, to upgrade to a new phone at $0 upfront cost,” Piecyk said.

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