Correct
prediction 
Incorrect
prediction 
Gene Munster of Piper Jaffray
January 15, 2009
The company is led largely by [Cook], chief financial officer Peter Oppenheimer, and ten Senior Vice Presidents who share a collective track record of consistently outpacing their competitors in terms of hardware and software innovation coupled with robust product marketing and financial discipline.
We believe that during Jobs' absence, Apple's sales will be unaffected. More importantly, we believe the pace of innovation will remain solid, driven by key product-minded executives. From an operational perspective, we expect [Tim] Cook to maintain the same standard of excellence that he demands as COO.
While the iconic leadership of Steve Jobs cannot be fully replaced, we believe his core attributes as a CEO, operationally and with products, can be replicated. Cook provides the operational expertise for the company, which would serve him well as Apple's CEO. [Along with Jon Ive], we believe that Cook and the other leaders at Apple can effectively replicate the elements of Steve Jobs' leadership that have been critical to his success as CEO."
Munster maintains his Buy rating on AAPL with a price target of $235.
December 30, 2008
Predicting product announcements for this year's Macworld has been difficult with new iPods and Macs released in the fall and the relatively new iPhone 3G. With Phil Schiller delivering the keynote, we believe it suggests there will not be any revolutionary products at this year's event.
While we believe it is unlikely that a new iPhone will be released at Macworld, we continue to expect a new model by the end of the March quarter. Specifically, we believe Apple could introduce a lower-end model that is slightly thicker due to the inclusion of a slider keyboard for students (texting) and business use (email) between $99 and $149."
December 17, 2008
We're not expecting as much today as we were yesterday. The reality is, if they had something big to show, Steve Jobs would probably be showing it.
While we do not believe that this change provides any indication regarding Steve Jobs' health, we do believe that it is a sign that we are in the early stages of changing roles in Apple's management structure.
While Steve Jobs is the irreplaceable face of Apple, we believe product innovation has come from throughout the organization."
December 4, 2008
The primary reason for our universe-wide estimate cuts is that the economic and consumer spending outlook has deteriorated significantly over the last month, which we expect to continue through 2009.
Our reduction is primarily driven by macroeconomic headwinds causing overall PC sales to grow at about 5% y/y in 2009. We believe Macs will continue to gain share, but we are reducing our y/y growth to 10%, down from 16% previously."
Price target lowered to $235 from $250.
November 25, 2008
What is the current state of Apple's business?
Following 25 hours of counting iPhone and Mac sales in U.S. Apple retail stores across the country and recent NPD data on Macs and iPods, we believe the current quarter is tracking in-line with Street expectations. Driven by the Oct. launch of new MacBooks, Macs (and notebooks in particular) are selling well despite the weakened consumer confidence. We have analyzed NPD data for the 1st month of the December quarter which is up 28% y/y; it leads us to a Mac number of between 2.5- 2.7M (we believe Street consensus is approximately 2.6M Macs in the quarter). This range implies y/y Mac unit growth of 8-16% vs. the Street at 13% y/y growth. That said, iPod growth continues to slow, limiting somewhat the positive impact from the new Macs. Net-net we believe the Dec. quarter is tracking in-line with Street expectations."
How might Apple view the challenging economy?
We believe Apple's strategy in the December quarter is similar to the September quarter. The company is taking a disciplined approach to costs and build rates for the holiday quarter. In order to do this, we believe the company is managing its component orders based on sell-through of their products using daily sales reports from its own retail stores and its largest channel partners. The result is a measured approach to relatively low visibility into sales during the holiday quarter, particularly with the most important weeks of iPod coming in the next few weeks."
How should we think about Apple's gross margin guidance for FY09?
Several times since issuing its FY09 guidance of "about 30%", Apple has reiterated the same guidance but has placed increasing emphasis on the word "about." We continue to expect upside to the guided gross margin level and believe 31% or slightly higher is achievable in FY09."
How are the new aluminum (and older plastic) MacBooks selling?
Following 25 hours of counting Mac sales in U.S. Apple retail stores across the country and recent NPD data on Macs, we believe the new aluminum MacBooks ($1,299) are selling well. While we do not believe sales are exceeding Apple's own internal estimates, as the stores have had ample supply throughout the launch, we now believe the Mac unit number for the Dec. quarter may exceed our and Street expectations of 2.6M. We note that the new product will likely lift Mac ASP's; during our in-store checks we found that the new aluminum models (priced $200 higher at the entry point than the previous white plastic MacBook model) are vastly more popular than the newly priced white plastic model ($999). We caution that our in-store checks do not reflect the direct sales to the Education market where the $999 model is likely finding more success, but we believe the net effect of the new aluminum MacBooks will be a lift in Mac ASP's. We are modeling for Mac ASP's to rise sequentially from $1,386 in the Sept. quarter (in which lower-priced Education sales prevail) to $1,552 in the Dec. quarter (in which the higher-priced aluminum MacBook is now available)."
Will Apple release a netbook?
Steve Jobs has indicated that the company "doesn't do cheap", and has not yet entered what he feels to be a "nascent market" for low-cost laptops, called netbooks. We believe that Apple has focused its efforts on the iPhone to accomplish much of what a netbook accomplishes: a mobile web browser. That said, we believe Apple could find success with a product in its lineup between the iPhone and the MacBook. If Apple chose to release such a product, we believe the most likely candidate would be an 11" MacBook Air priced between $800 and $1,000, which could be released some time in CY09. Further down the road, Apple could leverage its multi-touch patent portfolio for a product with a similar price range and feature set in the form of a tablet Mac, which is more likely to be released in CY10 or beyond."
What is Apple's gross margin on the iPhone?
Using numbers released following Apple's Sept. quarter, we now believe the ASP of the iPhone (from Apple to the carriers) is about $630. However, we also believe that Apple will be able to lower its price of the phone to carriers by up to $150 in the next 6 months, but maintain its margins, by leveraging falling component pricing. As such, we are modeling the iPhone ASP to be about $475 in the Dec. quarter. We believe the gross margin on the iPhone is higher than the company-wide gross margin, which will provide a source of earnings leverage as the iPhone grows as a percentage of sales in FY09. Note that we are modeling for the iPhone to grow from 5.7% of sales in FY08 to 18.4% of sales in FY09. Specifically, we believe Apple's gross margin on the iPhone is in the high 30's or low 40's."
How far are we into the iPhone's international rollout?
By the end of CY08, Apple has indicated that it will expand the iPhone's addressable subscriber base significantly. In other words, the iPhone's international rollout is still in its early stages. According to our checks on the iPhone international website, availability will grow from a subscriber base of about 660m subs in 44 countries in late Aug. to about 989m subs in 73 countries by the end of the year. This represents 50% growth in addressable subscribers ahead of or during the holiday quarter. For example, since Aug., three Russian wireless providers including MTS (61M subs), Beeline (42M subs), and MegaFon (37M subs) have launched the iPhone 3G. Also note that we continue to believe Apple will launch the iPhone with one or two carriers in China in CY09, adding either China Mobile (550M subs) and/or China Unicom (128M subs), which would further expand the sub base by 13% (China Unicom only), 51% (China Mobile only), or 63% (both Chinese carriers)."
Will Apple release the iPhone in China?
We continue to believe Apple will launch the iPhone with one or two carriers in China in CY09, adding either China Mobile (550M subs) and/or China Unicom (128M subs). The company has indicated that it remains focused on launching the iPhone in China, but several hurdles remain. The dust has not yet settled in China regarding the licensing of the 3G networks among the major carriers. We expect the Chinese government to make announcements on the licensing within the next 1-2 months (possibly sooner). In addition, the inclusion of Wi-Fi in the iPhone may be a limiting factor in China. For example, Apple does not yet sell its iPod touch in China possibly due to the inclusion of Wi-Fi. Apple could solve this issue by creating a version of the iPhone software that disables the Wi-Fi features in the Chinese models."
When will Apple release a new iPhone?
Most investors believe the iPhone hardware will be the same throughout 2009 as it is today; we disagree. While Apple has indicated that it differentiates the iPhone from its competitors by software, the company has not addressed its strategy to segment the market by expanding the iPhone lineup as it has the iPod lineup. Specifically, Apple could offer a SKU at a lower price than the current $199 entry price and/or a premium SKU at or above the higher priced $299 16GB model. Apple could lower the price by removing features like 3G and GPS; alternatively, Apple could make a premium SKU with a sleeker design using higher-end materials, more processing power, better graphics and more storage. We believe Steve Jobs' comments on the Sept. quarter conference call regarding Apple's iPhone strategy in CY09 support our thesis of new iPhone models at different prices in CY09: "I think we have to be the best. And I think we have to not leave a price umbrella underneath us."
How should investors think about iPod growth going forward?
Growth in the iPod business is clearly under pressure, with y/y growth coming down to 6% in FY08 vs. 31% in FY07. We are modeling for a -12% y/y contraction on a unit basis in the iPod business for FY09. That said, the iPod is an important product for Apple as an entry point into the Apple device ecosystem, and introduces users to other Apple products like the iPhone and the Mac. Moreover, Apple has indicated that there are currently 65m active iTunes accounts. Given the total 174m iPods sold to date (through Sep-08), this equates to 2.8 iPods per active iTunes accounts. However, we believe some users and families share a single iTunes account for several iPods. Assuming 2 iPods per person implies 87m iPod users (including older iPods that are no longer used). In other words, with 87m iPod users, Apple has a large addressable base for iPhone and Mac sales from which it can draw in the coming years."
How many retail stores will Apple open next year?
While Apple opened a record-high 50 retail stores in FY08, we expect the store openings to slow in FY09. Specifically, we believe Apple will open 20-30 stores in FY09. The company is taking a disciplined approach to new lease obligations given the current macroeconomic reality and the retail initiative is also maturing to a point where slower growth is warranted. Apple is nearing a saturation point for top-tier malls in the U.S., where about 300 U.S. locations is a rough ceiling for specialty retailers. Apple's trend has been to focus on its international store openings more than it has in the past. For example, Apple has not reached the same critical mass in Canada, the U.K., or Australia as it has in the U.S. We also expect Apple to add more stores in China following a successful launch of its Beijing store. In other words, we expect Apple to open stores in fewer new countries in FY09, but we anticipate Apple to strategically increase the number of stores in countries it has already entered. Such a plan would allow Apple retail to invest in growth in Apple's core international markets."
How will Apple stores sell the iPhone 3G as a gift during the holidays?
Due to changes in the activation process (in-store instead of at home), the iPhone 3G is more difficult to purchase as a gift. AT&T offers gift cards for the iPhone 3G and voice and data plans, but a simple gift card is not as exciting as the phone itself. To solve this, it would make sense if Apple follows AT&T footsteps and offers an iPhone 3G gift cards this holiday season. If this is successful, we see it as a positive for shares of AAPL given most investors are not expecting a strong holiday period for the iPhone."
October 22, 2008
During the Sept. quarter, iPhone sales of 6.9m were significantly ahead of the Street at 5.0m, iPod sales were in-line, and Mac sales of 2.6m were slightly below expectations of 2.8m ahead of new portables in Oct. While the product cycles make it difficult to determine, we believe that Apple is weathering the economic storm better than expected. With new Macs at lower entry prices ($999), new iPods, and strong iPhone growth, we believe Apple is positioned to exceed Dec. quarter guidance.
Bottom Line. We remain buyers of AAPL. Based on comments from the conference call, we think the economy has only had a minimal impact on Apple's business, and believe Apple will exceed guidance for the December quarter. 2009 remains a wild card, but should get a boost from a family of iPhones not yet reflected in Street models."
October 9, 2008
- Lower priced aluminum MacBooks (sub-$1000)
- Redesigned MacBook Pros (thinner, advanced trackpad)
- Refreshed MacBook Air (updated specs)
- No Tablet Mac this year
We feel good they're going to have a sub-$1,000 notebook. It's just been two and a half years since these [notebooks] have been redesigned, so it's been long overdue.
We expect the new MacBooks to be cheaper. However, it is likely that the new MacBooks will be a more premium product (with new aluminum casing and gesture-based touchpad). In other words, we expect the new MacBooks to be a meaningful upgrade with an average selling price 9-18% lower [than today's models].
While we are confident that Apple will eventually bring its touchscreen technology from the iPhone to the Mac, we do not expect to see a touchscreen Mac this year."
September 23, 2008
To use a baseball analogy, when Apple comes out with a product, they try to hit homeruns, but Google's Android strategy is swinging for base hits. Today's announcement in itself does not change anything, however, if over the next 2 years Google has many similar small announcements, it will become a greater threat to the iPhone.
[Apple's closed platform] will allow for Google to expand Android widely and quickly, but Apple can control the quality more effectively. In the end, wide availability and high quality are both critical. Apple has improved international availability of the iPhone dramatically over the last several months, and the quality of the hardware and the software are high.
While the G1 is a legitimate competitor with the iPhone, we believe it will have little or no impact on near-term iPhone sales."
August 13, 2008
Our 25 hours of counting iPhone sales in Apple retail stores throughout the country lead us to believe Apple is on pace to beat our previous estimate of 4.1 million iPhones for the September quarter.
We believe Apple will sell 1.78 million units at its U.S. retail stores, and 0.90 million phones at U.S. AT&T locations. Our estimate assumes each of the 2,200 AT&T stores will sell an average of 5 phones per day from the July 11th launch through the end of the September quarter.
We believe that our revision may be conservative and that Apple will meet our estimates. The August 22nd launch in additional countries should provide another catalyst to sales."
August 6, 2008
We note that the MacBook has had the same design since its launch over two years ago, and the MacBook Pro has had essentially the same design since its launch over 2.5 years ago, which was very similar in design to the PowerBook G4 released over 5.5 years ago. To compare, the long-running iMac G5 design lasted three years.
We believe there is an 80% chance Apple will introduce redesigned MacBooks and possibly new MacBook Pros at lower price points. Specifically, Apple may re-enter the $999 price point (currently $1099) with the MacBook, or test the $1,799 price point with the MacBook Pro (currently $1999).
[Multi-touch] gestures are just the beginning of Apple's exploration of multi-touch on the Mac. Eventually, we expect Apple to change the trackpad to backlit color screens for a more dynamic user interface on the Mac.
We believe Apple is getting slightly more aggressive with its pricing, but overall the company is not diverting from its strategy of premium pricing."
June 11, 2008
Mobile service adoption rates show that iPhone owners are more sophisticated mobile users, likely a result of both the user profile and the device itself. The bottom line is that we expect similar adoption of the App Store to other advanced services. Mobile users haven't seen apps like this before
According to April m:metrics data, 45% of smartphone users play a game on their phone at least once in a month. For iPhones, data suggests the rate is closer to 32%; however, we believe the rate of application users/gamers for iPhones is depressed given that third party developers were not able to produce applications for the iPhone previously.
Applying this 70% higher likelihood [of iPhone users to consume video on their phones] to the rate of game usage for smartphones, we arrive at 75% of iPhone users engaging in downloading third party applications. The reason we believe this could be conservative is that the iPhone heavily overindexes other smartphones in advanced services.
We see [Enterprise apps] as a positive indicator of the potential for Enterprise adoption of the iPhone. We found the average cost of iPhone apps on the App Store to be $2.29, with 71% being free.
Based on our scenario analysis, we believe the App Store could be a $1billion+ market (aggressive case), and add 1%-3% to operating income in CY09."
May 14, 2008
We continue to expect a 3G iPhone to be launched in mid-June. Given the channels are running dry of the current models (8GB and 16GB), the limited availability is one of several indications that the release of a new model is imminent.
We expect the second-generation iPhone to be slightly redesigned with 3G mobile data. Apple's Worldwide Developer's Conference on June 9th is a likely event at which Apple could announce the design and features of the new device."
Munster maintained his Buy rating for AAPL with a price target of $250.
May 1, 2008
Will Apple alter its pricing strategy?
Apple sells its products at the full MSRP 364 days a year (with one exception on Black Friday). And because its products can garner a premium, we do not expect Apple to alter its stance towards relatively higher prices. From time to time Apple will lower prices to drive demand, as we have seen with the 2/19 shuffle price cut to $49 from $79, and the recent price actions taken in Europe with the iPhone. For more on iPhone pricing, see below. It's important to note, Apple legally can not influence the retail price of its products sold through 3rd parties. Talk that Apple has broad pricing control are false."
How does Apple approach the Enterprise business?
In the past, Apple has indicated that at its core, it is a consumer company. We believe this is still true; however, we believe Apple is slightly changing its perspective on selling to the Enterprise. The recent iPhone software announcements with Exchange support and other enterprise solutions provide Apple with a foot in the door. In fact, 1/3 of all Fortune 500 companies have approached Apple with interest in the iPhone Enterprise Beta program. While Apple will let consumer demand drive the product decisions it makes, the company recognizes that every consumer is likely PC user at work, and we expect the company to focus on improving its outreach to Enterprise users. Overall, we see this as a slight change, and we expect Apple to remain singularly focused on the consumer segment."
Will Apple TV become a full 4th cylinder business, or will it remain a hobby?
Currently, the Apple TV represents a very small part of Apple's overall business. In fact, Steve Jobs refers to it as a "hobby", rather than a complete fourth cylinder of Apple's strategy (along with iPod, iPhone, and Mac). During Macworld, the company acknowledged that it did not get the Apple TV right the first time around. But we believe Apple is more confident in the business after the recently updated software update, internally dubbed "Take 2". Widespread adoption of the product is limited by the need for a broadband internet connection and a widescreen TV, but the movie rentals offering is becoming increasingly robust, and we believe Apple intends to continue innovating on the Apple TV platform. That said, our expectations for the Apple TV business remain conservative."
Why did Apple stop selling a $999 iMac?
When Apple last redesigned the iMac, in August 2007, the company dropped the 17" model at the $999 price point. We believe the company ended shipping the 17" iMac simply because it was not selling as well as the 20" model. And it is likely that the company increased the margins on the iMacs by reducing the amount of SKUs in the lineup, particularly with the elimination of an entire screen and form factor size."
How is Mac growth in the education market relative to overall Mac growth?
We believe Apple's growth in the education markets is outpacing its overall Mac growth. And this is significant considering Mac units grew 51% year-over-year in the March quarter. Specifically, we believe higher ed has been growing significantly faster for Apple than overall Mac units, and the K-12 business has also been a key driver."
What are the key selling points of a Mac?
Mac market share is rising, and we believe consumers are choosing to buy Macs for four reasons: 1) Apple offers unique, eye-catching hardware; 2) Apple's OS X is widely understood to be more secure and stable than Windows; 3) The iLife suite (iTunes, iPhoto, iMovie, etc.) attracts users who are looking for a digital lifestyle solution; 4) Apple has worked to improve the Mac buying experience, especially in its retail stores."
How is Apple approaching Multi-Touch?
We believe the Multi-Touch gestures recently added to the MacBook Air and MacBook Pro are just the beginning of Apple's exploration of Multi-Touch on the Mac. Apple is clearly leveraging its technology portfolio from the iPhone to improve the Mac experience as well, and we believe Apple will continue to add Multi-Touch gestures to its notebooks. Currently, these gestures require the same touch-sensing technology used in the iPhone, but they use a traditional looking trackpad. Eventually, we expect Apple to change the trackpad to backlit color screens for a more dynamic user interface on the Mac. And ultimately, we expect Apple to develop a full touch-screen MacBook, although not until the technology has fully matured over the next 3-5 years. We believe Multi-Touch is a core differentiator of Apple products (relative to other touchscreen devices), and Apple has adequately protected its innovations in order to maintain a leading edge in the touchscreen device categories (phones, portable computing devices like the iPod touch, and Mac notebooks)."
How serious is Apple about the enterprise opportunity for the Mac?
When we talk about building products, it's a consumer focus. Choices that favor a consumer and the purchasing behavior of a consumer. Businesses are looking at Mac and its great technology regardless. Could pushing enterprise opportunity hurt the consumer business? Maybe, there are concerns. We believe that they will always focus on driving the product forward. It's Apple's DNA. Driving forward – not hesitant to eat their young."
In the coming years, how will people use their Macs in ways they aren't today?
In addition to significant advancements in touchscreen features, we expect Apple to continue to invest in the digital lifestyle trend. From the beginning, Apple has led the way with its iLife suite of applications for digital music, movies, and photos. We believe this focus will be primarily driven by software, with periodic updates to the iLife suite. Additionally, we believe that devices in Apple's entertainment ecosystem like the iPod and Apple TV will augment the digital lifestyle trend on the Mac side. The integration between the elements of the ecosystem is a critical piece of the Mac growth, from the Halo Effect of those devices."
What is the iPhone's hardware roadmap?
We continue to expect Apple to offer a family of iPhones (2-3 separate models) in the first half of 2009, including lower priced ($200-$300) models. Just as the company slowly diversified the iPod lineup and entered lower price points with every new version of the iPod, we expect Apple to launch new models of the iPhone at lower price points in CY09. This expectation, along with the expectation for lower price points, and world wide availability of the phone, is critical to our CY09 iPhone estimate of 45m units."
How is the price a carrier charges for the iPhone set?
Although Apple is able to garner a premium price for its devices, we believe its carrier partners are free to price the device at their discretion. In fact, when Apple's carrier partner in the UK, O2, lowered the price of the 8GB iPhone by £100, the price of the same device on Apple's UK Web-based store remained at the original, higher price. We believe one reason why wireless carriers were eager to sell the iPhone is that Apple can maintain a higher ASP; however, Apple has made it clear that they are not hesitant to explore alternate pricing schemes. For example, the company is currently exploring a subsidized model in Germany with an 8GB phone going for as low as €99. Furthermore, we believe Apple is not hesitant to try business models other than the exclusive models the company has chosen during the iPhone's first year. It has enabled Apple to maintain tight control on the user experience of the iPhone, but expanded availability will likely become a higher priority, and we believe it will eventually drive Apple to offer the iPhone on multiple carriers in each country."
What was the driver for the App Store on the iPhone for 3rd party applications?
The thriving iPhone hacking community adequately showed that there was significant demand for features the iPhone is capable of, but Apple is not offering. Games, instant messaging, and industry-specific applications are several examples of features that the iPhone does not currently offer in a native application setting. We believe Apple recognized that its user base was dissatisfied with the simplified Web 2.0 apps available on the iPhone's web browser; as a result, the company announced the availability of 3rd party applications in March along with the iPhone operating system 2.0, which is on track to arrive in late June."
Is the iPhone cannibalizing iPod sales?
We believe that there is some degree of iPod cannibalization due to the iPhone, but the impact is difficult to measure. In general, it is clear that iPod growth is slowing, but we believe that Apple will counteract the maturity in the iPod market with innovative new touchscreen iPods at lower price points. Additionally, Apple is well positioned to upsell its users from lower priced iPods to more expensive iPhones, in which case the cannibalization of iPod sales is a net positive to the company."
What did Apple management mean when it referred to the iPod as a "Wi-Fi mobile platform"?
History has shown that iPod growth is largely tied to: 1) the holiday shopping season and 2) innovative iPods. During the December 2007 conference call, management referred to the iPod touch as the beginning of a "mainstream Wi-Fi mobile platform." We believe that the iPod touch is the first of several Internet-connected iPods that Apple is currently developing. Internet connectivity enables applications like email and a web browser to add significant value to the iPod lineup, which will drive incremental growth and spur the replacement cycle for current iPod owners. With 70% market share, we believe Apple is positioned to transform the MP3 market into a portable computing market. And with the addition of the iPhone and iPod touch SDK, along with a robust and growing developer community working with the beta, Apple is well positioned to expand its iPod user base into the mobile computing category."
How are the Apple stores performing as a business segment?
Simply put, we believe its retail stores are one of Apple's most underappreciated business segments. Despite talk of a retail recession, revenue from all retail stores rose to $1.45B in March, up 75% year-over-year in total. Additionally, the average store revenue (not comparable stores, but an average of all stores) grew 48% to 7.1M in the quarter. Finally, Mac sales grew to 458K units in the March quarter, or 20% of all Macs sold, despite the fact that the 200+ retail stores account for just 2% of the approximately 10,000 Mac points of sale."
What are Apple's plans for international expansion?
The concentration of Apple retail stores reflect Apple's strongest markets. Clearly, the US is Apple's strongest market, and it also has the most Apple retail stores. The UK is second, with 15 stores, and it is Apple's second largest market. We expect Apple to capitalize on this market with more stores in the UK. According to the relationship between Apple's business in a country and the amount of retail stores, Canada is slightly behind on the retail front, and we expect the company to add stores in Canada in the near future. We also expect the company to launch a store in Beijing, China before the Olympic games (around the July '08 timeframe). In other words, we expect Apple to lead with its retail stores into the Chinese market, which represents a large opportunity for the company. This would not only provide a significant point of sale for Macs in the country, but it would also establish a center for iPhone sales and marketing for an iPhone launch in the country (which we expect some time in 2009)."
April 4, 2008
In the U.S., Apple's supply of iPhones continues to be limited, but European carriers appear to be overstocked. These data points lead us to believe Apple will launch a new iPhone in the U.S. in June at the latest, with a European launch shortly thereafter.
This type of channel control is typical of Apple ahead of new products. In Europe, the opposite story seems to point to the same conclusion. Apple's carrier partners are a completely separate channel from its own retail stores, and the carrier partners appear to be overstocked with iPhones.
This has been compounded by weaker than expected iPhone sales in Europe. Therefore, it seems as if this has led to Apple trickling iPhones into its U.S. retails stores, while T-Mobile and other carrier partners seek to drain their stock of iPhones ahead of a new model."
April 2, 2008
Regarding new touch screen iPods:
While we do not see the iPod business as a significant growth catalyst, we believe Apple remains positioned to slightly exceed Street estimates in 2008. Specifically, we believe the Street expects iPod unit growth to be about 53 million in 2008, essentially flat year-over-year. We disagree. We believe Apple can maintain iPod unit growth and slightly exceed Street expectations for the full year. While we do not believe the iPod will return to a high growth business (20%+), we do believe it will remain a growing segment (~10%).
We note that this rapid increase in available features on the iPod touch is not speculation; Apple has indicated that the new iPod touch (and iPhone) operating system will be out by late June. Secondly, we expect Apple to release new Wi-Fi enabled, touchscreen iPods in the sub-$200 range by September. In fact, we believe the concept of the iPod will change in the next 12-18 months from a standalone music player to a mobile Internet device that fits in your pocket. We continue to believe there will be standalone music players in the iPod family, but the iPod functionality will be significantly diversified across price points, with additional Wi-Fi enabled models that will likely feature Apple’s multi-touch technology.
One potential issue that the company will be forced to navigate carefully is that the differentiation between the iPod and the iPhone. With a sub-$200 Wi-Fi enabled iPod, the price-to-value equation changes in relation to the iPhone; however, we also expect Apple to release a sub-$300 iPhone in the coming months. Admittedly, the exact way the product lineup will fit together remains unclear.
Another issue posed by Wi-Fi enabled iPods is margin pressure from high component costs. iSuppli estimates that the inclusion of a Wi-Fi radio costs Apple roughly $15, and the touch screen display used in the iPhone and iPod touch is roughly $30.
For a $149 or $199 iPod, these costs apply margin pressure that will force Apple to innovate around the idea of an Internet connected iPod, which requires a larger screen than current iPod nanos, and an improved user input interface (like multi-touch technology). We believe Apple is developing such solutions that will enable the company to deliver lower cost, Wi-Fi connected iPods in the near future. In turn, this new iPod platform should generate continued growth for the iPod segment of Apple's business. We are increasingly confident in our estimate of 11.3 million iPods in the March quarter."
Regarding multi-touch Macs:
Looking into 2010, we expect Apple to advance its touchscreen technology, known as multi-touch, from simple trackpad features to a complete MacBook touch with touchscreen keypad features. Discussions we have had with component suppliers indicate that Apple is already testing full multi-touch Macs, but the software requirements will likely lead to a launch timeframe of 2010.
In 2004, the iPod's third full year of sales, Apple sold more than twice as many iPods as it did Macs. And in the December 2007 quarter, Apple sold more iPhones than it did Macs. Clearly, these devices have enabled Apple to significantly expand its user base, which we believe will drive demand for Macs.
In the US, IDC indicates that Apple sold 4.2 million of the 67 million total PCs [in 2007]. Again, if we assume 70% of those were Enterprise sales, then Apple's market share in the US was still just 21%.
We took a closer look at some specific examples of buying comparably appointed Macs and PCs and found that on average, PC desktops are priced 16% lower than Macs, while PC laptops are priced 9% lower. This compares to similar checks we conducted almost 2 years ago in which we found PC desktops were 13% cheaper than Macs and PC laptops were 10% cheaper than Macs. We believe computer shoppers are willing to pay a premium (10% to 15%) for a Mac, and Mac sales would benefit if consumers realized that the actual premium is in fact 10% to 15%, as opposed to the perception that Macs are 20% to 30% more expensive."
March 31, 2008
While most investors view our estimate of 45 million iPhones in 2009 as outrageously aggressive, we are maintaining our estimate based on several factors. First, we expect Apple to introduce a 3G iPhone model with additional features in the next 3-6 months. We also expect Apple to offer an entire family of iPhones by January 2009 at the latest including lower priced models that decrease the average selling price.
Just as the company slowly diversified the iPod lineup and entered lower price points with every new version of the iPod, in this way, an analysis of initial iPod growth can serve as an initial basis for iPhone forecasts. However, data from the first 3 quarters of iPhone sales indicates that the iPhone’s unit growth curve is significantly steeper than that of the iPod.
And the company did not sell over 2 million iPods in a quarter until the iPod's third year of sales, whereas the company sold over 2 million iPhones in the second full quarter of sales. In sum, we believe the iPhone is a full 2-3 years ahead of the iPod in terms of its historical growth pattern.
We believe the continued international rollout of the iPhone will effectively double the addressable market every year for the next two years. The iPhone is currently available in 6 countries and it is offered exclusively through 6 carriers in those countries with a total subscriber base of 153 million. With a total of 3.7 million units sold through December 2007, the iPhone’s penetration into this addressable market is about 3%. Apple has reiterated its goal to launch the iPhone in Asia in 2008, which we believe will be limited to Japan. Several other countries that may see iPhone launches in 2008 include Canada, Italy, Mexico, and Australia.
In China, however, the market dynamics complicate Apple’s business model of exclusivity and we believe the company will likely need to alter its terms in order to launch the iPhone with a Chinese carrier like China Mobile (over 370 million subscribers) by mid-2009. We have spoken with people close to China Mobile and our conversations lead us to believe that Chinese carriers are unlikely to sign a revenue sharing agreement with Apple. This is due in part because of the 70% market share enjoyed by China Mobile. The bottom line is that the mobile phone market is less competitive in China than it is in the US and Europe. As a result, it appears China Mobile is unwilling to pay the monthly revenue sharing of ~$15/month that we believe other exclusive iPhone carriers are currently paying Apple. That said, the number of unlocked iPhones in operation is a sign of international demand. The mobile market in China is an ideal market for the iPhone’s international expansion, especially with a 3G version. In time, we believe Apple will alter its strategy of signing exclusive revenue sharing agreements with its partners in Asia, which will enable the company to sell the iPhone in China by mid-2009.
We believe the early hype surrounding the launch of the iPhone enabled Apple to garner steep revenue sharing agreements for the 'must have' device from the initial carriers like AT&T, O2, and T-Mobile. However, as the iPhone becomes an established player in the mobile phone market and competitive offerings become available, Apple may not be able to command the exclusive agreements with high revenue sharing plans as it did initially."
March 7, 2008
Whereas Apple lacked a full developer community for the Mac in the 1980s, the company is taking precautions not to let limited developer support hinder the iPhone platform. The platform with the most active developer community will likely win the battle in the mobile computing arena.
For a $99 or $149 iPod, [wi-fi and touchscreen component] costs apply margin pressure that will force Apple to innovate around the idea of an Internet connected iPod, which requires a larger screen than current iPod nanos, and an improved user input interface (like multi-touch technology). We believe Apple is developing such solutions that will enable the company to deliver lower cost, Wi-Fi connected iPods in the near future.
So, the new iPhone features put the device on equal footing with Windows Mobile devices, but RIM offers a unique solution for enterprise customers. Additionally, most businesses using the Blackberry platform have also purchased specialized hardware, which represents a significant hurdle for widespread iPhone adoption in business environments. Apple's move enables the iPhone to begin competing with Blackberry and Windows Mobile, but some hurdles to adoption remain, like the cost of the iPhone."
February 12, 2008
Resellers are noticing that customers are more curious, but less willing to buy the MacBook Air than they were the original MacBook.
Resellers indicate that sales of the MacBook Air have been additive to their overall Mac sales in the quarter. The MacBook Air addresses the need for mobility unlike any other Mac, and as such we believe it is not cannibalizing sales of other Mac laptops.
We are modeling for Mac units to be down 18% quarter-over-quarter in March. We note that Apple's reseller channel has struggled to compete with Apple's own retail stores, so the fact that the channel is collectively seeing flat sales may appear to be a positive for the Mac segment in March."
January 29, 2008
In order to achieve [15%] year-over-year iPod growth, we are expecting Apple to introduce cheaper, innovative iPods with Wi-Fi and multi-touch technology.
We believe these numbers imply that, despite a slowdown in growth in the MP3 market, Apple's vision of the iPod lineup becoming a mainstream Wi-Fi mobile platform will have two results. First, it will spur growth in the portable media player market, particularly from the replacement cycle. Second, if Apple is able to lower prices on Wi-Fi connected and possibly touchscreen iPods, it will be able to maintain or grow its leading market share position.
Whereas the iPod classic simply enables users to listen to audio and watch video (with some remedial calendar and contacts applications), we believe that Internet connectivity opens the iPod to an entirely new set of possibilities. For starters, as we have seen with the iPod touch and the iPhone, email, full-featured web browsing, a mobile iTunes Store, YouTube, and Google Maps are all possible on an iPod.
If for example you are on your way to Starbucks, you could wirelessly order your drink from your iPod, pay for it using your iTunes account or the attached credit card, and pick it up without ever standing in line or waiting at a cash register. These features (and possible features) make the iPod touch more of a mobile computing device than a simple iPod.
We believe Apple is developing such solutions that will enable the company to deliver lower cost, Wi-Fi connected iPods in the near future. In turn, this new iPod platform should generate continued growth for the iPod segment of Apple's business."
January 23, 2008
Over the last 7 quarters, on average, Apple has guided earnings-per-share 9% below Street expectations. While the March quarter EPS guidance is more conservative than average, Apple's revenue guidance for the quarter is 2% below Street expectations, vs. an average of 4% below expectations over the last 7 quarters.
Mac market share continues to rise, and growth rates are accelerating. Using IDC estimates, Mac market share in December '07 was 3%, or 50 basis points higher than in December '06, [which represents] the largest gain in Mac market share since we began tracking IDC data seven quarters ago.
January 22, 2008
We have analyzed all three months of NPD data (Oct., Nov. & Dec.) for the quarter and found that it now suggests iPod units of 24 million to 25 million.
We see this as a neutral data point. Bottom line: we continue to expect Apple to report a strong December quarter driven by in-line iPod results and outperformance in the Mac segment."
January 16, 2008
The consumer's desire to enjoy content whenever and wherever is a clear trend in digital media. We believe that the ability to rent movies on iTunes for $2.99-$3.99 will drive significant interest in Apple's entertainment ecosystem. This ecosystem now includes the Apple TV, iPod and iPhone. Because of the integration of these devices, consumers can be certain that by purchasing Apple devices they can view their content whenever and wherever. Moreover, as people invest in digital media libraries, Apple customers can be assured that their devices will work with newly released content in the future."
January 14, 2008
While there were reports that Apple Taiwanese supplier Catcher missed its quarter due to a cancelled Apple order, we confirmed with Catcher that it did not say the miss was due to Apple. We now expect Apple to report iPod sales of 25 million to 26 million, which is slightly ahead of the Street expectations of 24.7 million units.
The iPhone is still in startup mode, so 2008 is more of a foundational year for the product than it is a growth year. We believe it is more important that the iPhone product line progresses in 2008 (with feature improvements and price decreases) than it is for the iPhone to see significant unit growth.
While it is difficult to predict what the stock will do around the quarter, we believe the December results, coupled with new Macs announced at Macworld, will increase Street confidence that Apple will have sustained Mac market share gains in 2008."
January 9, 2008
At the [CES] show, we observed three key themes in the CE space: hardware design, touchscreen devices, and ecosystem connectivity. These are three areas of strength for Apple, and it is evident that other industry players are pushing to catch up.
iMac-like all-in-one desktop computers from Dell and Gateway, for example, are two instances of other device makers following Apple's lead. At CES it is clear that eye-catching design is a priority.
Several companies are pushing to catch Apple in terms of connectivity. Such products included the Sandisk Take TV, wireless streamers, and other connected entertainment devices that offer a non-iTunes competitor to Apple's entertainment ecosystem.
Touchscreen device makers like Samsung are following Apple's lead, but we believe Apple is significantly ahead of other device makers (except perhaps Microsoft). Apple has largely focused its R&D on its multitouch technology, which is used in the iPhone, but we anticipate more multitouch devices from Apple throughout 2008."
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