Charles Wolf of Needham and Co.
January 15, 2009
Wolf maintains his Strong Buy rating and $240 target:
While it will be difficult for Apple shares to outperform with this cloud hanging over the stock, the fact that Mr. Jobs did not resign nor did the Board call for his resignation suggests that he may well be telling the truth. In short, with the stock likely trading on the prospect Mr. Jobs will never return, the news today could represent an incredible buying opportunity.”
December 17, 2008
I think Apple wants to get away from the tyranny of MacWorld where it is forced to introduce new products on IDG's schedule, rather than its own."
October 22, 2008
The observers arguing for Mac price cuts point out that during a recession, users who might otherwise buy a Mac, may opt for an entry level Windows notebook instead. However, this argues against price cuts even more strongly because it implies that the price elasticity of demand between Macs and Windows PCs is lower and the value destruction is greater than we assumed in our analysis.
In short, Apple has demonstrated that there are a significant percentage of Windows users who recognize the value of a Mac and are willing to pay more for comparable configurations of Macs and Windows PCs. This argues that Apple should focus its resources on making the Mac even more unique as it did with the recent introduction of the MacBook, which features an all-in-one design and a versatile, multi-function track pad that no Windows competitor will be able to emulate for the foreseeable future.
And as usual, fourth quarter earnings guidance was downbeat, anticipating the recession. However, the astonishing news coming out of the release was non-GAAP earnings, which treats the iPhone on a sales rather than amortization basis. On this metric, Apple earned $2.69 in the quarter. We’re maintaining our strong buy rating and our price target of $240. We’re reducing our fiscal 2009 GAAP earnings estimate from $5.95 to $5.65.
The overriding risk in the Apple story is the economy. If the impending recession is deeper or more prolonged than we anticipate, Apple’s revenues and earnings could fail to meet out estimates."
January 29, 2008
Re: the iPod touch becoming a "mainstream Wi-Fi mobile platform"
If the company is successful in this endeavor, it would provide a compelling upgrade path for the estimated 85 million people who already own iPods. And it could attract new users to both the iPhone and the iPod platform as well. The company appears willing to risk the cannibalization of a significant number of iPhones to accomplish this."
November 30, 2006
Subsequent events, most importantly stronger than anticipated growth in Mac shipments in June and September, indicate that our interpretation of the survey results that triggered our upgrade was conservative.
We effectively assumed that no Windows users would switch in the absence of the Mac’s ability to run Windows. Even then, our $90 price target was almost 60% higher than Apple’s share price at the time.
A key reason for the upside was stronger than anticipated Mac sales. Evidence that Windows switchers played an important role in the growth of Mac sales even before the introduction of Boot Camp indicated that our previous assumption, that no Windows users would switch to a Mac in the absence of its ability to run Windows, was unrealistic.
Our forecast has Apple’s share of these two markets increasing dramatically, from 9% in 2006 to over 40% in 2016. A significant portion of the increase results from our plausible assumption that once they switch, a high percentage of Windows users will stay with the Mac platform when they subsequently upgrade.
A more accurate measure, then, of the iPod halo and Windows-on-Mac phenomena is Apple’s share of the worldwide PC market. This increases more realistically from 3.5% in 2007 to 8.3% in 2016, the last year in our forecast."
September 13, 2006
In view of the rampant speculation on rumor sites, it would have been next to impossible for Apple to pull a rabbit out of the hat. And it did not. There were no new iPods, only enhanced and cheaper versions of existing models.
It’s the software, stupid. It is an overused expression, but nonetheless software has been the secret sauce of Apple’s success in conquering the legal online music market where it has an 88% share in the U.S.
The new [iTunes] features make the store even more user friendly than it was. In our opinion, iTunes represents the greatest barrier to competitors ever catching up with Apple’s multimedia ecosystem."
Napster, Sony Connect, and Yahoo! Music combined have not reached the same level of success as iTunes. iTunes remains the world's most popular digital music store.
The significance of Apple’s Showtime announcements is that they should maintain, if not increase, the company’s dominance of the MP3 player market and the music download market. They also insure that Apple will be one of the major players in the emerging video viewing market both on portable devices and in the living room."
July 20, 2006
Apple got through another quarter of its transition to the Intel processor family. We believe the PowerMac, the only model not running on Intel, will receive its Intel upgrade at the Worldwide Developers Conference on August 7th."
Mac Pro with dual Intel Xeon processors announced.
We estimate that between 15% and 20% of Americans own an iPod or another portable music player. Our model indicates that steady state penetration rate could reach 50% by 2010."
June 13, 2006
In a poll taken by Needham, 8% of Windows home users said they would switch to a Mac if it could also run Windows.
"An increase of this magnitude would almost triple Apple’s share in the home market and increase it 75% worldwide. Although a seemingly small percentage, it nonetheless dwarfs Apple’s current share of the home market.The good news from Apple's perspective is the iPod's penetration rate among Windows users in our survey was only 13.6% despite worldwide iPod sales of over 50 million since the product was introduced in October 2001. Our long-term forecast has the penetration rate of all music players (including the iPod) reaching 50% in the US in the 2010 to 2012 time period.
It will fall on Apple’s shoulders to translate them into reality. We believe the Apple Stores could play a pivotal role in this effort. Hoards of Windows users visit the Apple Stores -- at least half of all visitors, according to some estimates."
April 20, 2006
Once the transition is complete by the first quarter of fiscal 2007, we believe Mac shipments have the potential to surge on the strength of the Mac’s newfound ability to run Windows applications along side Mac applications."
Intel transition is completed in August 2006, 6 months earlier than expected.
The ability to run Windows either in Boot Camp or via Parallels is a major selling point for first-time Mac buyers.
Our initial survey of college students indicated a material percentage of Windows users would purchase a Mac if it could run Windows applications natively. However, the higher education market is one of the Mac’s strongholds.
We are preparing a second survey that targets this audience. What’s noteworthy, however, is that the switch rate could be far lower among this group and still generate significant market share gains for Apple."
Regarding a consumer level notebook successor to the iBook:
Without the new model, the season could be quite short. Peter Oppenheimer, Apple’s CFO, effectively signaled the introduction of this model on the company’s conference call in his gross margin guidance."
MacBook is released in May.
Wolf said the Intel upgrades to the MacBook Pro and PowerMac "could experience postponements" that extend into 2007 due to a lack of Intel-native software such as Adobe CS2.
Apple’s professional audiences, which are heavy users of these products, are likely to postpone their upgrades until they arrive."
February 9, 2006
At the end of his Macworld keynote address in January, Steve Jobs, Apple’s CEO, noted that the company will celebrate its 30th birthday on April 1, 2006. While it’s possible that Jobs’ was simply pointing out the longevity of Apple, we interpret it as a signal that Apple will hold a major birthday party in the form of new product event around that date, most likely in early April.
The one sure-fire product Apple has to introduce is an iBook running on the Intel single core Yonah processor. Failure to have an Intel iBook ready for the school-buying season could significantly jeopardize Apple’s education sales.
Apple was careful to call the iPod capable of displaying video that it introduced in October just that—an iPod that played music but also featured a video viewing capability. According to our sources, the screen on the [true] Video iPod will occupy the entire front of the current iPod with a touch-activated scroll wheel.
In view of Apple’s increasingly cozy relationship with Disney, we would not be surprised to see ESPN’s Sport Center show up at the store in the near future. In our opinion, the rapid increase in the iTMS’s video offerings is a strong signal that an iPod with a much larger screen is on the way."
ESPN shows did arrive, but so did dozens of shows from other major networks and studios. An iPod with a larger screen was not announced.
Wolf also predicts April may bring an Intel Mac mini specially designed for the living room.
Intel Mac mini is released in February. It is not specifically designed as a media hub for the living room.
January 19, 2006
The company reported non-GAAP earnings (before stock-based compensation) of $0.68. However, the stock swooned in after-hours trading apparently because of a 'pause' in Mac shipments near the end of the quarter, and guidance for the second quarter that was perceived as subdued.
The good news is that Apple began its transition to the Intel processor platform almost six months ahead of schedule with the Macworld introductions of the Intel iMac and MacBook. We anticipate that the iBook will migrate to Intel this spring followed by the PowerMac sometime in the summer."
Apple released the MacBook in May and the Mac Pro in August.
Wolf says moving to Intel processors will "materially increase Mac sales" once the transition is completed.
Wolf expects the "actual” video iPod in the first half of the year.
No new video iPod arrived in the first half of 2006. A minor upgrade to the current iPod video arrived in September.
November 7, 2005
If we assume that all of the growth in Mac shipments during the past three quarters resulted from Windows users purchasing a Mac, then purchases by Windows users exceeded one million. Indeed, the number of Windows users purchasing Macs in 2005 could easily exceed our forecast of 1.3 million switchers in 2006.
A year ago, there was a constant stream of 'iPod killer' stories. With the introductions of the nano and video iPod, Apple has left its competitors in the dust. Sony is the only major name-brand competitor that appears to have a future in this market, although its product portfolio is now a generation behind the iPod nano and video iPod."
Wolf expects "microdrive players to return to the iPod forefront in 2007 as capacities reach 20 GB.
We’re downgrading Apple from a buy to a hold because the company’s share price has reached our revised price target of $61. During the past year, in response to the introduction of breakthrough new iPods and Macs and outstanding financial results, we’ve doubled our price target.
New products and innovative strategies from Apple should keep coming. However, we can’t quantify them in our valuation model since we don’t know what they are. The risks in our downgrade stem from what we don’t know as well as the possibility that Windows users are migrating to the Mac platform at a far higher rate than we’ve modeled."
February 24, 2005
The increase in music sales in combination with a decrease in peripheral sales in our revised model raises Apple's overall gross profits because music sales are much more profitable than peripheral sales."
Although profit margins on music sales are slim for Apple, music downloads continue to accelerate.
November 24, 2004
Although we expect hard drive players to capture an increasing share of the portable music player market, flash players should dominate the market through 2006."
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