Shaw Wu of American Technology Research

November 20, 2006

From our understanding, [the Apple cell phone] will leverage off existing iChat software that runs on Macs. We believe it will focus initially on mobile IM as opposed to e-mail.

We remain uncertain on the exact timing for iPhone. We believe its 'go-to-market' strategy continues to be the gating factor (MVNO vs. traditional carrier or both)."

The iPhone is announced at Macworld. Instead of focusing on mobile IM, the touchscreen interface makes it easy to make a call, offers a new visual voicemail feature, and threaded SMS.

November 2, 2006

We believe improved video battery life, higher video resolution, movie content, and video games are helping drive sales [of the iPod video]. Nanos continue to rebound helped by lower price points, 24-hour battery life, multiple colors, and scratch-resistant casing.

We continue to believe this dark horse [iPod shuffle] could end up being the top selling iPod and gain significant share against flash competitors.

We see several catalysts over the next few quarters including: Mac OS X Leopard in [the first half of 2007] that will help maintain strong Mac momentum, iTV launch in [the first quarter of 2007], movie content partners beyond Disney, new iPod features including widescreen and wireless Bluetooth capability, and cell phones sometime in 2007. We reiterate our Buy rating and would take advantage of recent weakness to add to positions."

October 19, 2006

We believe the biggest surprise in the quarter was Apple disclosing full financials despite the ongoing options investigation while most other companies with options issues have reported only limited financials. We view this as a vote of confidence that the current management team is not likely liable of wrongdoing (if any).

The gross margin came in at 29.2% (vs. guidance of 28.5% and our 28.7% view) helped by favorable component pricing as well as a favorable product mix. We find the gross margin expansion impressive in light of Apple's aggressive iPod pricing further demonstrating its supply chain strength."

October 9, 2006

We are modeling continued strength in its Mac business (up 6% from prior quarter to 1.4 million units) driven by MacBook and a rebound in its iPod business (up 5% from prior quarter to 8.5 million units) helped by new nanos and initial shipments of its new shuffle."

Apple reports 1.6 million Intel Macs and 8.7 million iPod units sold.

For revenue, we believe Apple will likely guide to $5.7 to $6.1 billion (we are at the upper-end at $6.0 billion), up 25% to 31% from prior quarter, fueled by continued Mac strength and a continued strong rebound in its iPod business. As usual, we find consensus out-quarter revenue estimates unreasonably aggressive, this time at $6.5 billion."

Apple provided conservative guidance for its current quarter of $6.0 - $6.2 billion in revenue.

Given the recent timing, we believe there is a fair likelihood that Apple will disclose limited financials. Should Apple give out full financials, we believe this would be viewed a positive."

Apple discloses full financial results rather than limited financial.

September 8, 2006

As shown in the schematics included in Apple's [patent] application, we believe the device will have a candy bar form factor with iPod like functionality, including a clickwheel.

Should Apple gain 1% share in a billion unit [cell phone] market, we believe that could amount to a $2 billion opportunity, assuming around 10 million units at a $200 average selling price, but not including potential services and accessories revenue.

We believe this smart phone has been in development for over 12 months and has overcome substantial challenges including design, interference, battery life and other technical glitches."

September 5, 2006

Our research indicates that an Apple-designed smart phone has moved from concept to prototype and recently has progressed to near completion as a production unit.

Clearly, we would like to share more detail as we have conducted extensive work on the product pipeline, but for now, here is what we will convey. The design will be an iPod nano-like candy bar form factor and come in three colors (we are not certain of the exact colors but we suspect black, white and platinum, similar to Apple's current color scheme of iPods and Macs).

We believe our cell phone assumptions are conservative given the high-end user demand for an Apple cell phone and the key point is that this is an incremental new opportunity that could help drive sales of other Apple products.

On September 6, the 24" iMac is released. Wu made no prediction regarding a new iMac model in prior months leading up to this release. The iMac line also upgraded to Core 2 Duo processors.

 

August 1, 2006

We anticipate that [Apple's] pro desktop will move to Intel, making the transition essentially 100% complete."

 

Mac Pro with Intel Xeon processors are announced at WWDC.

We believe there is a 70% chance that at least one other Mac model could be upgraded to Intel's Core 2 Duo line at WWDC."

No other Macs were upgraded to Core 2 Duo at WWDC. New Xserve with Dual-Core Intel Xeon processors is announced. iMacs will be upgraded to Core 2 Duo on September 6.

July 10, 2006

We continue to believe that the new iPod nano (aka mini vPod) refreshes are facing transition issues due to an architecture move to an SoC vs its present 3-chip solution. In terms of timing, we continue to believe calendar Q4 is most likely, specifically October and at the earliest, late Q3, meaning the second half of September."

The iPod nano line is refreshed on September 12, not October. They still do not have video playback capabilities.

An interesting data point we have picked up on the new nanos is a new magnesium-based casing. We believe this new casing will improve scratch-resistance, durability, and help lower Apple's support and warranty costs."

The second generation iPod nanos have annodized aluminum casing and are slimmer than the previous generation by .4mm.

June 28, 2006

We previously believed that new nanos and the widescreen video iPod could ship in Q3 and Q4, respectively. However, we now believe that both could be delayed by a quarter or two."

 

The second generation iPod nano is not delayed and ships in Q3 (September).

Depending on how much progress is made (in battery life), we are picking up that wireless Bluetooth headphones may or may not be included with this next-generation video iPod."

While it may sound counterintuitive, a positive side effect of these product delays could mean better spacing of iPods in 2007. With the original nano and video iPod released a month apart in late 2005, it created a very strong December quarter but exhausted Apple's iPod pipeline for 2006."

June 13, 2006

Wu expects Apple to release a mobile phone no sooner than mid-2007 but "more likely in 2008-2009."

So far, Apple has applied and received WiFi and Bluetooth approval, but there is no sign of cell phone activity as of yet.

Apple is also exploring a vertically integrated model and user experience similar to its iPod + iTunes and Mac business models. Apple would have tighter control over the user experience including the hardware, marketing, service and support. We believe its 147 or so physical retail stores in prime locations in the US and around the globe would come in handy in such an endeavor.

May 18, 2006

MacBook is shipping 1-2 months ahead of our checks (we had anticipated the June/July timeframe). We thus have a higher degree of confidence that Apple is on track to hit the upper-end, if not exceed, its guidance of $4.2 to 4.4 billion in revenue and $0.39 to $0.42 EPS "

May 1, 2006

Our most recent checks indicate the current 2GB and 4GB nano models will see their storage doubled to 4GB and 8GB capacities. We anticipate these new nanos will become available in the September Quarter and become top sellers, particularly if Apple keeps the price points low at $199 and $249."

On September 12, new iPod nanos are released 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.

Wu states that a new 13" widescreen consumer notebook to replace the iBook will be released in June/July:

We view this as an important release as iBook is the second most important volume product in the Mac business."

The MacBook is released on May 16, not June/July.

April 20, 2006

Regarding weaker sales through Apple's retail channel:

"We are not too bothered as we believe most of the weakness was seasonal and from our checks, Apple's sales representatives have been instructed to not push PowerPC Macs [on] customers who want to wait for Intel Versions. In this day and age where making numbers is important, we believe Apple is in a rare group of companies willing to sacrifice its near-term revenue opportunity for greater longer-term success by developing customer trust."

Regarding Apple's gross margin of 29.8% vs Wu's forecast of 27.8%:

"We find this interesting as there was speculation on where Apple would benefit or suffer from rapidly dropping NAND flash pricing given its $1.25B in long-term supply contracts.

For the June quarter, Apple guided below consensus in we think another attempt to reset unrealistic consensus revenue expectations."

April 5, 2006

Steve Jobs did not disappoint on the 30th anniversary after all. This morning, Apple announced Boot Camp beta software which allows an Intel-based Mac to run Windows natively. We believe this is a big deal and potentially could be a significant game changer."

Additionally, with support for both EFI and BIOS for booting, Microsoft Vista will also be supported on a Mac. We view this as an incremental negative for HP, DELL and other PC makers as Apple will be able to garner additional PC market share."

Apple's market share in domestic notebook sales continues to rise.

March 21, 2006

The most interesting development is that Apple has notified its distributors that its high-end 60GB vPod is 'at risk'. Timing is not certain to us, but we believe a new widescreen video iPod with Bluetooth headphones could be ready as early as the June quarter."

No widescreen video iPod with Bluetooth is announced in the June quarter.

We believe Apple may need to increase storage capacities and/or cut prices to re-generate interest [in the iPod nano]. Declining prices in NAND flash and additional capacity coming on board should help Apple facilitate these moves."

iPod nano maintains the same pricing as when it was first released. $199 for 2GB, $249 for 4GB. The 1GB nano released in February is priced at $149.

March 10, 2006

Recently, there has been renewed speculation regarding iPod production and demand. We wanted to offer insight from our proprietary checks with industry and channel sources, but also some perspective on high consensus estimates that remain well above Apple's guidance. As a result, we are raising both our March quarter estimates and iPod unit forecast (though we remain below consensus).

At this point, our main concern with Apple is not its fundamentals but rather the disconnect between Apple stock ratings and consensus estimates; this has helped create artificially high estimates, leaving little room for upside surprises, if not hope for a downside surprise.

Despite all the negative commentary on Apple (literally over the past two and a half years) and Apple's attempts to reset expectations, consensus estimates remain well above Apple's guidance (which ironically should spur more bullish commentary).

We remain firm believers that the move to digital entertainment is a multi-year trend and that Apple is the best-positioned company to capitalize with its unique and defendable iPod + iTunes and Mac franchises."

March 1, 2006

Regarding Apple's iPod Hi-Fi announcement on February 28:

At first, we felt a little underwhelmed with the product announcements due to our expectation of more announcements. But after more careful thought and consideration, we believe Apple is making less apparent progress in building a broader digital entertainment portfolio with both its Macs and iPod+iTunes franchises."

February 22, 2006

Regarding Apple's upcoming special media event on February 28:

We believe Apple will take the opportunity to round out its Intel Mac portfolio 6-9 months ahead of plan with a new widescreen consumer notebook (likely called "MacBook") and entry-level Mac mini, both of which will include a remote control and Front Row software."

The Mac mini with Intel Core Duo is released.

The iPod hi-fi is announced at the special event on February 28th. The iBook replacement (MacBook) is not announced til May.

Wu believes there is a "greater than 50% chance" that Apple will roll out the first full length feature films that will be available for download from the company's iTunes Music Store.

No announcement regarding iTMS film downloads at the special media event.

January 18, 2006

2006 will also see a year of significant Apple innovation and momentum. We envision more Intel Macs, content partnerships, a new iPod shuffle, a widescreen vPod, and Apple extending its Mac and iPod + iTunes franchises into the broader consumer electronics space.

Apple just reported blow-out December quarter revenue results, making a tough sequential comparison, and the transition to Intel processors is not risk-free." The stock "could pull back on a potential knee-jerk reaction" to such news, "but we would be buyers on weakness."

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