Shaw Wu of American Technology Research
December 9, 2005
Regarding Rosetta in Mac OS X 10.4.4 for Intel:
We believe this will alleviate concerns that older software that hasn't been ported to Intel will run well without a recompile."
Wu predicts the first Intel models will be the PowerBook, iBook, Mac mini and Xserve because they are "weaker members" of Apple's product line that "would benefit moving to Intel."
MacBook Pro replaces the PowerBook in January. Intel Mac mini is released in February.
MacBook replaces the iBook in May. Intel Xserve is released in August.
Wu does not believe the iMac will be one of the first Intel Macs because:
...its current PowerPC G5 configurations already offer industry-leading price-performance."
iMac was the first Intel Mac alongside the MacBook Pro.
Wu believes the first Intel Mac will be released during the first quarter of 2006:
While many believe that cost was primary reason for Apple moving to Intel, we believe power management and the opportunity to enter new markets are bigger reasons, including the potential for a lightweight sub-notebook or palmtop similar to those offered by Sony, Lenovo, Dell and Sharp. We believe there is pent-up demand for an Apple subnotebook and that it would sell very well if priced competitively at $1499 or lower."
Though the 13" MacBook released in May is small, it is not considered to be in the sub-notebook class. A true Apple sub-notebook has not been announced.
December 2, 2005
Apple disclosed that it sold 1 million videos on October 31, 2005. We are picking up indications that sales have more than doubled since then and that this strength is attracting attention from other content providers including NBC, CBS, and Fox eager to participate in this new market opportunity."
All major broadcast networks (ABC, CBS, NBC, FOX) release content on iTunes.
While it is still early, we believe Apple is in a decent position to build as strong of a position in digital video infrastructure as it has in MP3 players. Like music, we do not believe Apple will compete for profit in content as a reseller/marketer, instead giving the majority of the profit back to the content providers."
November 17, 2005
Regarding a second-generation iPod shuffle:
We are hearing of an even smaller form factor (smaller than a pack of gum) and the potential for the re-introduction of multiple colors. We believe [a January introduction] could help offset seasonal weakness in the March quarter similar to last year when the iPod shuffle was introduced."
iPod shuffle line remains at 512MB and 1GB models. Black and white are the only two colors available for all iPods.
September 12, 2006 - The second generation iPod shuffle is released with 1GB capacity, annodized aluminum casing, silver color, and a built in clip. Price is $79.
Regarding a radio interface problem with iPods when near a ringing GSM cell phone:
From our checks, it appears to impact GSM and not CDMA phones and only on nanos and video Pods. When a ringing GSM phone is directly in front of the clickwheel, the iPod could go 'crazy' and its volume could fluctuate uncontrollably (reminds us of R2D2 when shot by a laser gun). We do not believe this is a big deal and believe the worst case is Apple takes a minor write-down like it did with its iPod battery issue."
November 3, 2005
In some cases, in Apple's own channels, including its physical stores and online store, we believe video iPods are surprisingly outselling even the very popular iPod nano. We believe video iPod buyers are mostly installed base users attracted to its high storage capacity, video capability, and reasonable price points, while nanos are attracting more mainstream MP3 users.
We nevertheless view this trend as favorable for revenue and operating income as video iPods have higher ASP and operating expenses similar to the nano."
October 13, 2005
We are very impressed with the video iPod, or 'vPod' as we like to call it. We find the pricing of [the 30GB video iPod] interesting at about $10 per GB versus $62 per GB for the universally-loved 4GB iPod nano.
We might be alone in this, but we believe the 30GB vPod may steal some thunder away from the nanos and vie as one of the 'must-have' consumer devices this holiday season ... Consumers obsessed with the smallest size will continue to prefer the nanos."
Regarding the reason for Apple's aggressive iPod pricing:
1) Test the price elasticity on the nanos to see how much of a premium customers are willing to pay for 'smallness,' and 2) send a message to the NAND flash industry that prices still need to drop aggressively to remain competitive with micro-drives.
Unlike other MP3 vendors, Apple is not dependent on NAND flash solely and can still sell a lot of iPods with HDDs that deliver superior price performance."
Wu describes the new vPod as:
a Trojan horse, much like the original iPod, in moving the industry forward to the digital domain."
Regarding the new G5 iMac with built-in iSight:
It's the first legitimate step by Apple in addressing the emerging home entertainment service space. We believe Apple has an elegant solution with a superior user interface and we believe these new iMacs will sell as well as PCs. However, we believe Apple still needs to add PVR capability and more video out options to make this enhanced iMac a true contender in the digital home as a home entertainment server."
October 6, 2005
We find the timing [of the special event] interesting and somewhat expected as we left the recent September 7 event thinking Apple's been working on a whole lot more than just an iPod nano and iTunes ROKR cell phone.
If Apple can charge under $400 and preferably $299, we believe [the video-capable iPod] will sell well. At higher price points, we believe it may be difficult to drive high volume. We are also picking up indications that Apple could announce an optional external 'video-out' module that attaches to an iPod video meaning one can output the video to a TV or external screen."
The fifth generation iPod is released on October 12. Capable of playing MPEG-4 and h.264 videos up to 480x480 resolution. Pricing is $299 and $399 for the 30GB and 60GB models respectively. AV cable accessory can output audio and video to TV.
Wu also expects an upgraded Power Mac G5 with dual-core PowerPC processors and PCI Express to hold professional users over until Intel Macs are released.
The first dual-core PowerMacs are released with faster bus and memory speeds and PCI Express. Dual-core speeds are 2.0 GHz, 2.3 GHz, and 2 x 2.5 GHz (four processor cores) for $1999, $2499, and $3299 respectively.
September 20, 2005
In our checks with industry and channel sources, we believe Mac sales are coming in ahead of expectations. We believe that Apple is benefiting from a strong back-to-school period where students need a personal computer today, and Macs remain the preferred PC platform for managing documents, music, photos, and videos. We believe Mac momentum will likely carry into the December quarter."
Black nanos are selling well, while white nanos continue to lag. We are hearing that Apple grossly underestimated demand for the $249 black 4GB iPod nano and is realigning its supply chain to meet this demand dynamic."
September 13, 2005
Our checks indicate good, but not great initial sales of iPod nano. This may be surprising given the consensus view from both the investment community and technology reviewers that the iPod nano would be a big success.
The black-colored ones are outselling the white ones by a great deal. 5 to 1 and in some cases as high as 8 to 1.
We believe iPod nano is a great product and evolutionary step combining the best elements of iPod shuffle, iPod mini, and iPod photo, but we believe Apple may need to make some changes to ensure its success as a high-volume product."
The iPod nano was the top-selling iPod during the 2005 holiday season. Approximately 9 million nanos would be sold during the quarter, which would make it a success as a high-volume product.
Wu estimates Apple may need to reduce the price of the nano by $50 if sales continue to trail expectations.
The price of the 2GB and 4GB iPod nano remain unchanged at $199 and $249 respectively for a year. A 1GB version is released in February for $149.
September 12, 2006 - New iPod nanos in 2GB, 4GB, and 8GB capacity for $149, $199, and $249 respectively. 2GB in silver only; 4GB in silver, green, blue, pink; 8GB in black only. All have anodized aluminum casing.
August 8, 2005
Regarding Apple's move to develop their own touch-sensitive click-wheel in-house:
While this may come as a surprise due to a seasonal ramp in iPod demand and new cell phone wins, our proprietary checks with industry and channel sources indicate that Synaptics continues to be at risk as Apple moves to an internally developed [scroll-wheel] solution using CY PSOC controllers."
By utilizing a $0.55 chip from Cypress Semiconductor, Apple would be saving about $0.45 per unit. To help ease the holiday season demand, Apple re-hires Synaptics to supply click-wheel components for the iPod nano.
July 26, 2005
Wu believes a 2GB iPod mini using PortalPlayer and flash memory could debut sometime later this year, along with new a color display.
Flash memory and color LCD's never materialize in an iPod mini enclosure.
Wu believes higher capacity flash-based iPods and a video capable iPod will not ship until the October time frame.
A higher capacity flash-based iPod (the nano) is released in September. A video capable iPod ships in October.
Wu expects a Mac mini revision with 512MB RAM and Airport Extreme and Bluetooth standard (currently 256MB with Airport Extreme and Bluetooth optional):
Based on our checks with industry and channel sources, we believe Apple will release new enhanced versions of Mac mini and iBook product lines within the next two weeks, in time for the important back-to-school season."
In late September (two months, not two weeks), Apple does up the RAM, and add Airport Extreme and Bluetooth to its high end model. Also on the high-end Mac mini is a faster G4, SuperDrive option, a 5400RPM HDD, and ATI 9200 with 64MB.
Wu also believes the iBook line will add a widescreen model:
Both these refreshes should help spur sales. However, like other refreshes, a key thing to watch is whether the enhanced lower-end product will cannibalize higher-end ones. For Mac mini specifically, the question is whether an enhanced version will cannibalize sales of iMac G5, which many customers have opted to buy instead of the current Mac mini."
The iBook never receives a widecreen model in its lineup before it's replaced by the MacBook.
Regarding the current stock price:
We find its valuation rich and our fundamental concerns remain. We prefer the risk-reward in the mid-$30s."
Apple's stock price will continue to rise through the end of the year, closing 2005 at $71.89.
July 8, 2005
IBM announces a low-power 970FX PowerPC G5 processor at 1.2 and 1.4 GHz consumimg 13 watts. A more power-hungry 1.6 GHz version will consume 16 watts:
The [low-power 970FX] mobile G5 may surprise some given Steve Jobs' comments at his keynote that one of the key reasons why Apple is moving to Intel is that IBM cannot come up with a low-power G5 processor for use in a PowerBook. The irony of this is that these new mobile G5 processors consume 13 to 16 watts, very competitive with Intel Pentium M processors.
For Apple, the good news is that it now has more choices on PowerPC processors to bridge the gap over the next two years as it transitions to Intel processors. But the bad news is that we believe it will remain a marketing challenge to say that Intel Macs are the future and at the same time be selling powerful dead-end PowerPC Macs over the next two years."
Apple never utilizes the low-power 970FX in its notebook line. Apple would minimize the "marketing challenge" of selling PowerPC Macs by releasing Intel Macs sooner than expected (starting with the iMac and MacBook Pro in January).
June 28th, 2005
Mr. Wu believes that the inclusion of podcasting in iTunes 4.9 will help grow the phenomenon:
Because podcasting is available in the music store, it will draw interest, especially with additional marketing from Apple, which we all know is about to come."
Many podcasters saw their subscriber audience grow in number after their podcast was added to iTMS.
Wu said that Apple introducing color screens for iPods across the board was a "smart move."
Regarding the reduced price of the 1GB shuffle:
We found that people were paying US$50 more to get a 4GB iPod mini, so a greater price difference will help sales, although keeping the price of the 512MB shuffle the same could eat into those sales, since you can double the capacity for $30 more. I think there are more changes to come."
Regarding the Motorola mobile phone with iTunes:
But it remains to be seen if phone companies want people to drain their cell phone batteries listening to music. They want them to drain their batteries making calls. Plus, there was all this talk that camera phones would kill the digital camera market, but it's still strong. I'm not a fan of 'jack-of-all-trades' devices."
Regarding the current stock price:
I think it's fairly valued. It's gone up a lot recently, and we require a 20% return to justify a 'Buy' rating, which I don't think is going to happen. I like what Apple is doing, but the transition to Intel processors carries risk, and the company is being heavily targeted in the MP3 player market because it's still the top player. Their growth will also slow, which means comparisons will get very tough in the second half of the year. Apple will still grow, but not as much as before."
By year end, Apple's stock price will have almost doubled to a high of $75.46.
June 6, 2005
Wu believes there is no cost advantage in using Intel x86 chips over IBM's PowerPC:
We believe IBM has sacrificed profitability to drive price points attractive to customers that use PowerPC."
As Intel updated their processors more frequently, Mac price-to-performance ratio tended to lag behind their PC counterparts, notably in their notebook models. With the move to Intel processors, Macs reach component cost parity with the PC world.
Wu says Apple could potentially lose loyal customers and may cause a freeze in Mac purchases during the platform change. He mentions the loss of customers during the transitions from Apple II to Mac from 1984-196, and during the move from Motorola 68000 processors to PowerPC in 1994.
Unlike previous transitions, Apple will experience record growth during the Intel transition.
Wu believes Apple will support both the PowerPC and x86 architectures simultaneously. Apple could announce development and support of new dual-core G5 and G4 processors from IBM and Freescale respectively, along with an Intel-related announcement.
Indeed, Apple emphasizes the use of Universal Binaries to support both PowerPC and Intel architectures, and Rosetta to handle legacy PowerPC applications on Intel Macs during the transition.
Apple may increase the standard memory the Mac mini from 256MB to 512MB.
We have heard many users complain about the low amount of included memory in the Mac mini and the difficulty in installing additional DRAM."
In September, Apple silently upgrades the Mac mini.
June 1, 2005
Wu said Apple may release a 2GB iPod shuffle with a small display, no click-wheel, and utilize the SigmaTel single-chip system-on-a-chip (SOC) to keep component costs low. Estimated price to be $149.
A 2GB iPod shuffle never materialized. Maximum capacity remains at 1GB.
Wu also said Apple could release a 2GB flash version of the iPod mini that would sport a screen and click-wheel.
A 2GB flash-based iPod mini never materialized. Instead, it will come in a new enclosure and be called the iPod nano.
Due to the higher component pricing of the software and click wheel, this version would be priced around $199:
Either way, we see this product cannibalizing current best-sellers."
$199 price is correct.
Still, Wu believes Apple will expand the use of flash memory in it's iPod lineup:
Compared to a year ago where Apple's philosophy on flash versus microdrive was clearly in favor of microdrives, we believe Apple has changed its stance."
On September 7, Apple will release the new iPod nano to replace their best-selling iPod mini at the height of its market dominance.
Wu discounted rumors of a 4GB flash-based iPod that may be announced soon, saying 4GB flash chips are still to expensive to use in a digital audio player.
Ultimately Apple does release a 4GB flash-based iPod (the nano), but not until September 2005.
Wu expects the iPod mini to receive a color LCD while the 20GB iPod could be replaced by new iPod photo at lower price points.
An iPod mini with a color LCD never materialized.
May 12, 2005
Wu believes Yahoo's online music store withs its large music video library and $60 yearly subscription may sway some iTunes customers:
While Yahoo doesn't have a tightly integrated stack of hardware, software, and service like Apple, its adoption of Microsoft PlaysForSure Windows Media technology gives it access to a wide range of compatible hardware devices."
The iTunes Music Store continues to grow at a record rate and maintain its lead.
Wu believes Apple's "very dominate position" will be "challenged" by both Yahoo! and Sony:
Even if Apple were to enter the music subscription business, we believe margins on iPod MP3 hardware would be under more competitive pressure than ever."
iTMS never implements a subscription model for music. iPods remain the dominant digital audio player on the market.
April 27, 2005
We believe a 20x multiple is more reasonable and realistic as we believe it reflects the risk that Apple's growth could slow to 15-20% in fiscal year 2006, down from its current 70% year-over-year level "We believe the 25-30x multiple some are projecting may prove too aggressive."
By the end of 2005, even ATR will have revised guidance upwards, twice.
Wu is concerned by new flash and microdrive equipped digital audio players by Creative, Sony and Samsung. In the prior quarter, Creative sold 2mil players and Sony shipping flash based players with LCD displays to compete against the iPod shuffle at same price and capacity.
Wu states iPod mini and iPod shuffle will continue to contribute to lower ASP for all iPods:
This is quite a contrast from previous quarters where the best sellers were at $299 and $399 price points. The $99 512MB iPod shuffle appears to be the best-selling iPod in newer channels outside of Apple channels (Apple stores and online store) including international."
Regarding lackluster sales of $349 30GB and $449 60GB iPod photo:
We believe the high price points and lack of ability to listen to music and view photos at the same time on the iPod itself may be the primary reasons for weaker sales."
April 14, 2005
Wu is concerned by the declining ASP for iPods and Macs. iPod ASP fell by 28% from the previous quarter, and Mac ASP by 9%:
We continue to believe Apple remains the best-positioned to capitalize on the digital music opportunity with arguably the industry's most powerful and complete stack of hardware, software, and service."
Wu expects less "big up side surprises" in the near future:
In our view, investors do not believe Apple's guidance and have much higher unpublished expectations."
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