Jesse Tortora of Prudential Equity Group
March 5, 2007
Based upon recent checks, both Prudential Equity Group Software analyst John McPeake and we believe that Adobe’s CS3 and Apple’s Leopard OS will be released simultaneously at the end of March, about 1-2 months ahead of Street expectations. We think this powerful one-two punch makes a great deal of sense, as it will likely unleash a flood of pent-up demand for both companies’ products.
Consistent with historical patterns, we expect the late March release of Leopard to provide a boost to software revenues for at least the next couple of quarters. The last Mac OS (Tiger) was released in April 2005, about 18 months after the previous version release, and resulted in an increase in June quarter software revenue by approximately 45% quarter-over-quarter and 6% year-over-year.
We view the company’s long-term gross margin model of 28-30% as conservative and see margin upside over the next several quarters due to component cost declines and a richer product mix from sales of Leopard, Mac Pro and MacBook Pro, and iPhone. We expect new product ramps including iPhone and a flash-based widescreen video iPod with new functionality (wi-fi, GPS) to drive growth in [the second half of 2007].
Apple's next generation video iPod will be launched later this year and include flash instead of a hard drive, a wider touch screen similar to that of iPhone, wi-fi to enable the transfer of digital content from Apple TV, and GPS functionality.
Moreover, we see higher unit demand due to the substantial advantages flash memory brings including a thinner and lighter form-factor, longer battery life, and better durability. We point to how the introduction of the flash-based iPod nano (replaced HDD based iPod Mini) boosted overall Apple iPod sales in late 2005 as the case study. Moreover, we believe the addition of GPS functionality could position the iPod as the central hub for all digital content (music, movies, GPS) in automobiles, creating yet another market opportunity for Apple."
Apple
announces that Leopard will be delayed til October.
Adobe
releases CS3 at end of March.
December 5, 2006
Regarding Apple entering the video game market:
We think the video game market represents a distinct possibility for Apple, especially considering that it recently announced the availability of video games for its iPod through its iTunes store.
The game console device could be morphed out of some combination of the MacMini and iTV, while the handheld player could be developed as an enhancement to a future version of the widescreen iPod
"The video game console market is notorious for subsidizing hardware to sell profitable games. Apple would then have to either rely on the sales of its games and downloadable movies to make enough profit to cover losses on hardware or figure out a strategy to make profits on hardware itself.
There are no technical limitations to this capability, and Microsoft is already aggressively wooing the movie studios. This could adversely impact Apple’s iTunes Movie download business longer-term, along with its iTV and video iPod sales."
Tortora claims a "slim" Apple phone will be GSM/GPRS compatible, and will be able to play music and take pictures. He expects it will become availabe for sale late 1Q/2007 or early in 2Q/2007. Also, a WCDMA compatible smart phone model, to be released one or two quarters after the slim phone, will have a larger OLED-based display and a sliding integrated keyboard.
iPhone
will work on GSM Quad-band (MHz: 850, 900, 1800, 1900). It will go on sale in
June 2007.
No
mention of CDMA or WCDMA availability for the iPhone. No mention of OLED-based
display. iPhone has a virtual soft-touch interface, no sliding keyboard
hardware.
Apple has mentioned several times that music experience is its top priority and that it would not do anything to compromise that. We believe that the music phone will be true to these statements and should be considered a music player that has phone capabilities rather than a phone with a built-in music player.
The smart phone will contain camera functionality along with additional features that the slim phone does not have such as wi-fi and video capabilities.
Since the phones will be GSM/GPRS and WCDMA compatible, the choice of carriers will be limited to Cingular and T-Mobile. While there has been some speculation that Apple may take the MVNO (Mobile Virtual Network Operator) route, we don’t believe it is a serious option for Apple as the risks outweigh the advantages."
The
iPhone has Wi-Fi (802.11b/g) + EDGE + Bluetooth 2.0. No GPRS.
Tortora expects a widescreen iPod to begin production in 1Q/2007:
This device will have a larger screen than the current version, specifically designed for viewing downloaded movies and video clips."
October 16, 2006
Tortora predicts two iPod-based cell phone models. One will be a smart phone with an integrated keyboard, that can also play music and video. The second model will be a slimmer phone that can play music, but does not include a keyboard. One of the models will also include WiFi wireless capabilities.
The
iPhone is announced in two models, the only feature difference being storage
space (8GB vs 4GB). Both models can play audio and video and comes with a multi-touch
display with a virtual keyboard (when needed). Both models will have Wi-Fi and
Bluetooth.
Although these phones represent significant upside earnings potential for the company, there are some concerns regarding market acceptance and battery life, given the number of functions included in the phones. Our checks indicate that Apple will produce these phones in limited quantities initially as a market test vehicle."
Apple
is targeting 10 million iPhone units in 2007-2008, or 1% of the mobile phone
market.
Regarding a new widescreen iPod:
While our checks indicate that production of Apple's new widescreen video iPod will begin in the 4Q/2006, we do not expect the product to be released until early next year. All told, we would not be surprised to see Apple scale down ODM production plans as the quarter moves on, and think that iPod sales could fall short of investor expectations."
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