Gene Munster of Piper Jaffray
December 17, 2007
Re Mac udpates:
We believe the timing is right for Apple to update most of its Macs. Some models may only see minor specification upgrades to newer, faster Intel processors. The Mac Pro, for example, will likely benefit from the launch of the new Penryn-based Xeon processors. The MacBook may see minor upgrades to its storage capacity and/or processor speed, and the MacBook Pro may also receive minor specification upgrades, but we also expect Apple to expand the MacBook lineup with one new model.
Although we were anticipating an 'ultra-portable' device with an 8-11 inch screen, our checks indicate the screen will likely be 11-13 inches. That said, we continue to expect the 'ultra-portable' MacBook to be Apple’s thinnest and lightest ever. It will likely be priced between the $1,099 consumer level MacBook and the $1,999 MacBook Pro. One contributor to the smaller form factor could be the use of NAND-based solid state storage. In November Samsung introduced a 64GB drive, which we believe Apple would consider large enough to include in a new portable. Finally, there are reports that the new portable may include a unique touchpad, possibly using the same multitouch technology used in the iPhone and iPod touch.
Re movie rentals:
We also expect Apple to announce new content partnerships with one or more movie studios, which may involve the launch of iTunes movie rentals. We believe there is a 50% chance the download service is announced at Macworld, and a 90% chance by mid 2008.
If Apple begins renting movie downloads on iTunes, we expect a related software update to the Apple TV enabling movie rentals direct to the Apple TV. In fact, the Apple TV software currently includes 'iTunes Store settings' in its settings menu, but the option is essentially inactive. We expect this setting to be activated soon; users will likely be able to log into their iTunes accounts directly from the Apple TV and browse movie rentals, then download them directly to their Apple TV.
Re iPhone updates:
Rather than simply porting iPod games over to the touchscreen devices and making them available for purchase in the iTunes Store, we believe Apple is developing a new class of games that will make special use of the touchscreens. While such an announcement would be relatively insignificant, on a high level it is important to keep in mind that the iPhone has many capabilities that are not being fully utilized, and unique touch-based games are one example.
[In February] we also expect Apple to introduce contextual searching on the iPhone similar to Spotlight in Leopard.
November 30, 2007
As Macworld approaches, reports of an ultraportable MacBook are following patterns of previously expected products that eventually materialized. We believe these reports are legitimate and continue to expect Apple to introduce a MacBook with a significantly smaller form factor."
October15, 2007
Regarding an ultraportable Mac in the next 4 to 6 months:
The move could take place in the form of a smaller laptop and/or a tablet device using the iPhone's multi-touch technology. Although we do not have firm evidence, either product would be a strategic extension of Apple's current technology base.
We believe such an offering would be a logical addition to the Mac platform. A new laptop with a smaller form factor than the current 13-inch MacBooks would help Apple continue its share gains in the portable category, especially in Asia where UMPCs are more popular relative to other markets.
Regarding an Apple tablet device:
Such a device would likely have features and capabilities that the iPhone does not have, like data storage and file saving as well as document editing features. We believe Apple's multi-touch technology is slightly ahead of competitors using touch based input technology, and as such we expect Apple to leverage its multi-touch technology in future products."
Regarding iPhones hacked by third parties:
Some of the more popular third-party applications that hackers are installing include an instant messaging application, a voice recording application, and several games. We believe Apple may eventually open the iPhone up to a limited amount of pre-approved applications that they would monetize via the iTunes Store, but there has been very little indication from the company that that is forthcoming."
September 7, 2007
Apple is investing iPhone profit dollars over the next few quarters in order to be a legitimate player in the phone market. We think this is the right strategy.
We found in our survey of 200 iPhone users that about half of them did not know the manufacturer of their phone prior to getting the iPhone. In other words, there is virtually no brand loyalty in the mobile market. If Apple can build brand loyalty like they have in the music market, the iPhone should emerge as a major driver to Apple's long-term business.
We believe [the new iPods] at these price points will be compelling to both first time iPod owners and current iPod users looking for an upgraded device. As such, these new iPods will likely serve as catalysts."
August 29, 2007
We expect that the new iPods will be based on a modified version of Apple's operating system, OS X. Currently, Macs, the iPhone, and Apple TV run on OS X, and with these OS X-based iPods, Apple would have an entire line of consumer electronics products based on OS X. Instead of diversifying its business too dramatically, as some have argued, we believe Apple is focusing its business.
The iPod may also be dramatically improved. Though we are less certain of the specifications for the new 6th generation iPod, it may closely resemble the iPhone (without calling features). Specifically, we expect the 6th generation iPod to be a wide-screen device with multi-touch technology. It may also have Wi-Fi capability and the capacity could be as high as 160GB. Apple will likely raise the lowest iPod price point back up to $299 (from $249). The 5th generation iPod is the longest-lasting iPod model ever; it was released nearly 2 years ago and refreshed with high capacities and a lower price last September.
With new iMacs ahead of the education buying season, we believe Apple may see upside to our estimate of 1.9 million Macs in the September quarter. Likewise, if Apple announces new iPods on September 5, they would be well-timed for the critical holiday shopping season, possibly providing upside to our estimate of 22 million iPods in the December quarter."
160GB
iPod classic does not have Wi-Fi. Lowest iPod classic price point remains at $249.
New iPod touch introduced to iPod family.
July 20, 2007
Apple's iPhone revenue and COGS (cost of goods sold) will be recognized ratably over a 24-month period. This will smooth out the revenue impact of iPhone unit sales, but we expect Street focus to be on iPhone units and 'booked' revenues. If iPhone units and expenses were recognized at the time of shipment, our CY07, CY08, and CY09 revenue growth rates would be 25%, 29%, and 43%, which adds $0.32, $0.71, and $1.91 to EPS, respectively.
Applying a 28x multiple on $7.31 EPS leads to a $205 price target. Our target multiple of 28x is in line with the three-year average price/earnings multiple based on two-year forward earnings-per-share.
One thing we learned with the iPod is that when a device is game-changing, the demand will come. However, it is difficult to predict the inflection point. For example, in December 2004, Street expectations for iPod ran wild with investors anticipating 8 million iPods, but Apple only sold 4.6 million. It was feared at the time that the iPod would never go mainstream.
The debate on where Apple shares will be in 12 months is largely dependent on whether the Street believes Apple can sell 45 million iPhones in fiscal 2009 for an average price of $330.
The iPhone will have an even stronger halo effect than the iPod on Macintosh's market share.
July 12, 2007
Based on Apple's product roadmap and the fact that the iMac has not been updated in 309 days, we continue to expect redesigned iMacs this summer.
While Apple has been criticized for diversifying its product lineup, we believe Apple is focusing its offerings on the OS X software, which is used in Macs, Apple TVs, iPhones, and soon, iPods.
July 9, 2007
We believe the iPhone reveals much of what the iPod will soon be. Specifically, we expect Apple to release high capacity [touch-screen] video iPods based on OS X sometime during or before Macworld 2008 in January.
We believe iPhone buyers are looking for a better mobile phone, and the iPod features are an added bonus. Based on recent survey work, we believe most of the current iPod base is simply looking for a better iPod."
iPod
touch announced on September 5, four months ahead of Macworld 2008.
May 10, 2007
Timing of this is difficult to determine, but we would expect iTunes video rentals sometime in 2008."
We do not expect a stock split in the next several months (previously we were expecting the company would split the stock). Apple may be adopting a more Google-like approach (e.g., not-splitting shares and allowing the stock price to move out of historical ranges)."
March 15, 2007
At last year's NAB, expectations were that Apple would announce a high end version of Final Cut, but this did not materialize. We believe that there is a greater than 50 percent chance that if Apple holds a special event at NAB, it will be the venue for this announcement.
Don't expect Avid Pro users to flock to Apple if a high-end version of Final Cut is announced. While a high end version of Apple's Final Cut could be on par with Avid in many respects as far as functionality, Apple would be fighting a perception issue that pro editors have, as well as a loyalty to what they and the industry have been using for over a decade."
No
"high end" version of Final Cut materialized. There is still only one version of
Final Cut Studio.
January 4, 2007
Despite all of the talk regarding new product announcements, or lack thereof, at Macworld, we continue to believe that the announcement of an iPhone would be positive for Apple shares and no sign of this product would be a negative.
"Apple waited several years to enter the MP3 market, we believe the company is well-positioned to enter the phone market now that early music-enabled handsets have tested the waters. Apple will differentiate itself by offering iTunes integration on Macs and PCs, and by leveraging its expertise in software engineering for media playing devices."
In the next 2-6 months:
90% chance of the iPhone entering production phase of 12m units. In November 2006 two separate reports came from Asian news sources indicating that Taiwanese manufacturer Hon Hai's subsidiary Foxconn had received a 12m unit contract for the iPhone. According to Commercial Time the manufacturer signed the contract with Apple to produce 12m units for a scheduled release in the first half of 2007. Additionally, China Times reported that the manufacturer will produce between 500,000-600,000 units per month starting in early 2007.
Apple
announced the iPhone at Macworld and are targeting sales of 10m units through 2008.
100% chance of the iTV ($299) release at Macworld with some improvements from September debut. At a September 2006 event, Apple introduced the iTV, a wireless media streaming device to view iTunes content on a TV. At the show, the device was simply streaming media (but did not store it locally); we believe Apple could release an improved model with an internal hard disk drive. Downloadable movies average about 1.5GB each on iTunes and one way that Apple can ease capacity restrictions is to add hard drive space to the iTV. We believe Apple will eventually improve on the iTV shown in September, but the improvements may not come until after the initial release.
The
appletv, including a 40GB hard drive, is announced to go on sale in February.
In the next 6-12 months:
90% chance of an iPhone with candy-bar form factor. Given the fact that the iPhone will be Apple's first dip into the mobile handset pool, it is likely that the phone will come in a candy-bar form factor. Clamshell devices are often more prone to bugs and glitches, so when Apple releases its first phone, it will probably be a candy-bar style with limited moving parts and simpler software engineering.
The
iPhone is candy-bar style, slightly larger than the current 80GB iPod with video.
70% chance of a widescreen iPod with touch-sensitivity and wireless features. According to several Apple patents, along with word from component suppliers, Apple is working on a 6th generation widescreen iPod that could feature touch-screen capability. We believe that the new iPod will be a significant improvement to the 5th generation iPod, as the device becomes more video-centric. As such, the iPod line would feature small music-centric and "wearable" players as well as a larger music player with more video-centric features. Eventually, Apple will also likely add wireless syncing technology to the player, but battery drain remains a critical concern before such a feature is added.
Though
more than just an iPod, the
iPhone does have a widescreen display and touch-sensitive controls. Wireless features
include Wi-Fi, Bluetooth, and EDGE network compatibility.
70% chance of a second smartphone iPhone model with integrated keyboard. Indications from component suppliers point to the possibility of a second iPhone model featuring an integrated keyboard. We believe the initial iPhone release will include a single model, but Apple will likely expand the iPhone line to include a smartphone device for instant messaging and emailing at some point.
The
iPhone is an iPod, phone, and internet device all in one. Multi-touch interface
is used to control everything. No physical keyboard.
70% chance of an iSight camera with 4GB or 8GB storage on the iPhone. Recent rumors point to an initial release of two iPhone models: a 4GB version for $249 and an 8GB model for $449. Both models are rumored to feature two separate batteries in the handset, one for the phone and one for the music player. Also, Apple has successfully branded the iSight cameras on the MacBook and MacBook Pro portables and it is likely that they will eventually extend the brand to the iPhone line. With music, photos, and video from iTunes, the iPhone will be a media-rich device and an iSight camera would add to the eco-system of media/communications on the device.
The
iPhone features a 2 megapixel camera, but the 4GB model is priced at $499 and
the 8GB model at $599. A non-replaceable battery allows up to 5
hours talk, video, and browsing.
60% chance of multiple carriers as iPhone providers (vs. Cingular only or MVNO). We believe Apple will target as broad an audience as possible with the iPhone. Accordingly, the company will likely sell the handset through most or all of the top wireless service providers (Verizon, Sprint, Cingular and T-Mobile in the U.S.). That said it is possible that Cingular could obtain exclusive vending rights for a limited time. Early 2007 could be the ideal time for the release of the iPhone through Cingular. January and February 2007 will include the Macworld keynote on January 9, CES from January 8-11, and key marketing opportunities during the Cingular-sponsored American Idol Premier on January 16 &17 and the Super Bowl on February 4. This may be the "perfect storm" for the release of the iPhone, especially as a Cingular exclusive. An additional option would be for Apple to use a MVNO (Mobile Virtual Network Operator) system. We have not seen any hard evidence that indicates whether Apple will choose to go with an exclusive provider, several providers, or the route of an MVNO (Mobile Virtual Network Operator).
Cingular
is the exclusive carrier. The iPhone will be GSM Quad-band (MHz: 850, 900, 1800,
1900). No MVNO compatibility mentioned by Apple.
Possibly in the next 12-18 months:
40% chance of an ultra-portable 12" MacBook Pro. With the Intel transition successfully completed, Apple is ready to innovate the product line with the possible addition of an ultra-portable addition to the MacBook family. With the release of the 15" and 17" MacBook Pros, Apple decided not to carry the 12" PowerBook model into the MacBook Pro lineup. If a 12" MacBook Pro is released, we believe the product will address the need for extreme portability; not simply a smaller MacBook Pro. Another possibility is that of a touch-screen tablet Mac. Rather than marketing the tablet computer to business users (like tablet PCs), we believe that a tablet Mac would be targeted at home users desiring to wirelessly control media content. Again, this rumor is 'a stretch' because we have not seen any hard evidence, other than several patent applications, that point to the release of a tablet Mac.
30% chance of a radio-transparent material used for iPhone casing. Since current iPod casings would serve as poor mobile phone casings, Apple is looking into new casing materials. Specifically, the material must enable radio-waves to penetrate the device's exterior. In a Nov ember 2006 patent application Apple describes a computing device with radio-transparent material like zirconia used as the casing. We see this patent application as evidence that the iPhone is coming, but we hesitate to draw conclusions on the specifics of the device based on such patents.
30% chance of OSX 10.5 Leopard release at Macworld. While Microsoft has delayed the consumer launch of Windows Vista to January 30, 2007, Apple announced plans to release OSX 10.5, Leopard, in "spring 2007." These releases are not necessarily a race to the finish line, but we believe that Apple will work hard to ship Leopard close to the release of Vista.
Leopard
is not released at Macworld 2007.
20% chance of iPhone to feature 'iChat Mobile' video and instant messaging. Again, we believe that the iPhone will be a media-centric communications device and messaging features would work nicely with such an ecosystem. While it is unlikely that the first iPhone will feature video conferencing, this is certainly a feature the company could add to future models, including a possible smartphone model.
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