Ben Reitzes of UBS Investment Research
November 28, 2006
Our checks point toward solid iPod sales for new shuffles and certain nanos along with momentum in Macs and prospects for higher accessories and software longer-term.
Also, we wouldn’t be surprised to see Apple pull up the launch date of its new OS X Leopard in order to preempt Microsoft Vista. Another area that could benefit in [fiscal 2007] is sales of 'other music and accessories' as Apple sells more movies (we believe Apple will sign up more movie studios for iTunes beyond just Disney).
We continue to believe Apple will launch new products in 2007 including cell phones, iTV and even ultraportable devices."
November 14, 2006
Our checks for Apple continue to be positive for MacBooks, which could lend upside potential to our estimates for fiscal 1Q '07 (ends December) and bodes well for continued share gains. While Apple continues to dominate the MP3 player market in terms of share, our checks indicate that the MP3 market is a bit more subdued than last year due to general market maturation.
While Microsoft’s Zune will hit stores tomorrow, our checks show little excitement around the new product and we are not expecting much of an impact to iPod sales from the new MP3 player. In fact, initial reviews for the Zune have been far from impressive.
The displays were not given prominent floor space and could not be seen when walking into [CompUSA]. While we will be keeping a close eye on the impact of Zune, we do not see this product as much of a threat to Apple’s iPod given Apple’s loyal customer base, easy to use iTunes software and sleek, innovative form factors.
We are not expecting Zune to have a meaningful impact on iPod sales.
For
the month of November 2006, Zune has 2% marketshare vs 62% for the iPod.
During our checks over the past few months, representatives at CompUSA, as well as at Apple stores, continue to see solid demand for the MacBooks, with checks this month again indicating that MacBook strength has continued beyond the peak back to school spending season, which ended in mid-September.
We continue to believe solid demand for Macs will continue into [fiscal 2007] with upgraded MacBooks and MacBook Pros both now featuring new Core 2 Duo processors, in time for the holiday season.
While we believe the new Mac Pros should help provide some support to desktop sales going forward (helping improve sales into high end 'prosumers'), we continue to believe the pickup in sales will be somewhat subdued until the release of Adobe’s next version of Creative Suite, which is currently scheduled to be released by Spring 2007.
In addition, we believe new iMacs announced on September 6th should encourage switching from Windows to Mac and support estimates into calendar year-end. The new iMacs feature Intel Core 2 Duo processors including a new 24" model and a new entry price of $999 combined with increased processor speeds on Mac mini units (dual core performance at similar prices). Previous iMac products cost $1299 for the 17" model and $1699 for the 20" model.
As we have stated in previous reports, we believe Apple may be working on some kind of 'ultra- portable PC' or some devices that can bridge the gap between media playing, basic wireless computing needs and even some type of gaming. We would not be surprised to see new devices within the next year.
We believe Apple could see much better growth and drive this category if it stripped down features, optimized the device for media playing and web surfing and used its engineering and scale to drive prices down toward the $500-$600 level. At this price, one million units could equate to over $500 million in revenue and over $0.05 in earnings-per-share.
Right now, based on the current Mac line-up we estimate that each point of PC market share equates to over $3 billion in incremental revenue for Apple considering Apple’s high ASPs and high attach rates for software/peripherals etc. and estimate that the bottom line impact from each point of share would top $0.50 using incremental margin analysis. We assume about 2 million units equate to 1 point of worldwide share and Apple’s ASPs approximate $1,300. Also, we assume each 2 million Mac units for Apple generate about $1 billion in “attached" revenue in terms of software, peripherals and other services.
Included in our estimates is our view that Mac sales will benefit near-term from the delay of Microsoft’s Vista and strong acceptance of new Intel Macs. In [fiscal 2007] and beyond we expect new software from Apple (Leopard) and Adobe (CS3) should stimulate further growth in Mac sales.
We are also optimistic about further increases in Mac distribution through Apple retail stores and expanded relationships with Best Buy and Circuit City. Apple recently announced that its current pilot with Best Buy is progressing well and that it has recently expanded its presence in Best Buy to 50 stores, up from just 7 last quarter. In addition to Best Buy, Apple is also piloting its products within Circuit City -- about 10 stores at this time."
October 19, 2006
We believe that Apple has many exciting new products in the pipeline with many set to hit in the first half of calendar year 2007.
Apple’s iTV digital media hub previewed at its recent 'Showtime' event in mid-September is expected to hit shelves by calendar 1Q07, and we could learn about more exciting features for this product at Macworld in January (and more media hub products and services).
We remain confident Apple is working hard on innovating in the digital home and seems to still be a step ahead of the competition.
While there were concerns over potential for weak iPod sales throughout the quarter, we were extremely surprised at iPod strength during fiscal [fourth quarter]. Also, Mac unit sales of 1.61 million (up 30% year-over-year and up 21% sequentially) beat our optimistic estimates of 1.48 million units.
We are reiterating our Buy rating ahead of the January 8th Macworld Keynote address by Steve Jobs."
appletv
will start shipping in February 2007.
October 12, 2006
We believe that strong Mac sales are driving gross margin expansion and will be the story again in [the first fiscal quarter of 2007] with significant sequential improvement, perhaps benefiting in part from the delay of Microsoft Vista. With regard to Apple’s shares near-term, we see strong Mac sales offsetting slowing iPod sales growth, driving margin upside and providing plenty of earnings-per-share (EPS) support.
We also continue to operate under the assumption that Steve Jobs will remain Apple’s active and effective CEO based on the current facts.
We slightly lowered our revenue estimate primarily due to lower iPod units, which we now estimate to be 8.12 million (was 8.52 million) representing 2% [yearly] growth (flat sequentially) given new shuffles introduced at Apple’s September 12th event are not expected to ship until mid-October.
We continue to believe that this estimate could also prove conservative given a mix shift toward Macs and higher margins for the new iPod nanos released in September.
However we still do not expect any new video iPods until early 2007 after Macworld.
In terms of Macs, we expect Apple to upgrade MacBook Pros with new Core 2 Duo processors for the holidays.
We expect [the Apple cell phone] to materialize by the end of [the first half of 2007]. Building on success with iTunes, we believe Apple could create a phone that allows for the easy loading of content (music, video, contacts, photos and more) by docking to a PC or Mac.
Like iTV, we think phone associated partners could be announced long before it even ships since it does not really replace an existing product. Also, that way Steve Jobs can control the message around the new product line before details leak out."
The
new iPhone is anounced at Macworld.
September 7, 2006
With a potential foray into digital entertainment, we believe that Apple can expand revenues into incremental video/film downloads, digital storage and portable media devices. Also, we believe the evolving ecosystem can lead to higher sales of Macs given OS X’s unique ability to bridge the digital divide in the home in conjunction with iTunes."
Along
with 200 television shows, 75 feature-length films are available for download on
the iTunes Store on September 12.
July 20, 2006
While concerns over iPod sales ran high going into the quarter, Apple sold approximately 8.1 million iPods in 3Q06 (compared to our lowered estimate of 7.8 million units) representing about 32% growth year-over-year and a sequential decline of only 5%. Apple also stated that it remains extremely excited about future iPods in the pipeline and our checks in the supply chain are pointing in that direction as well.
We believe our revised estimates are more consistent with the [third quarter 2006] trends, which reflect solid growth and profitability.
We believe that prospects for share gains with Macs are getting even stronger with a new operating system (OSX Leopard), a 3 month plus delay of Microsoft’s Vista and strong acceptance of new Intel Macs.
We still expect new video iPods to be released in time for the holidays with higher capacities and bigger screens. We expect new iPod nanos to be released by the end of the current quarter with larger capacity video iPods to be released in the December quarter."
The
5.5G iPod video 30GB/80GB arrives in September along with the 2G iPod nano 2GB/4GB/8GB.
Building on success with iTunes, we believe Apple could create a phone that allows for the easy loading of content (music, video, contacts, photos and more) by docking to a PC or Mac. In addition, Apple could take advantage of its retail distribution to sell the product and create powerful revenue stream of post-sale accessories."
June 21, 2006
Given indications of solid demand for new Macs, prospects for new products next quarter and an increasing shift of consumer interest to Macs, we are raising our Mac estimates.
Our colleagues in Asia who attended the recent Computex trade show in Taiwan indicated that discussion with vendors showed Apple continues to stand out with strong PC orders in China and Taiwan, despite the overall weakness in PC orders. Notebook casing maker Jutang also confirmed the MacBook is ramping up volume currently [and Jutang is] on track to ship 500K units in 1H06 (starting May), and a total of 1 million units in 2006, accounting for only a portion of total sales.
We believe our checks back weaker than expected sales for iPods in Apple’s recently reported fiscal 2Q and lower production figures from industry sources. These views from our 'Retail Rumblings' reports have also been supported by recent NPD data which shows US iPod sales tracking slightly below our expectations.
Due to declining average selling prices (ASPs) as a result of a full quarter of shuffle price reductions and the 1GB nano, combined with our lower 3Q unit forecast, we are now forecasting iPod revenue growth of 3% year-over-year to $1.5 billion (was $1.6 billion)."
June 14, 2006
Reitzes believes Apple is developing an ultra-portable notebooks using NAND flash memory:
We believe these new products could start in notebook products with combo-drives (NAND and HDD) or ultra-portables (NAND only), and could be released in time for MacWorld.
Checks show the education segment should also lend support to estimates, given June is the time school districts exhaust annual budgets. With the education segment accounting for approximately 25% of US Mac unit sales, we believe both June and July (when new budgets come into play) could see solid growth, especially for MacBooks and iMacs."
May 8, 2006
We continue to be pleasantly surprised by our checks which indicate that there has been solid reception of the new Intel-based Mac minis. The new Mac Minis appear to be off to a stronger than expected start as our checks continue to indicate units are being purchased both as media centers and low-cost entry-level Mac options.
While concerns regarding Mac sales were high going into Apple’s fiscal second quarter (ended March) due to the Intel transition, Apple sold about 1.1 million Macs in [in that time] (compared to our estimate for 979,000) representing about 4% growth year-over-year and a sequential decline of only 11%. With demand for Intel-based systems realizing a full quarter of shipments in fiscal third quarter, we believe momentum in Mac sales should continue.
We believe that new MacBooks could be very popular for the back-to-school season and expect these units to be on display when Apple opens its latest flagship store at the GM Builiding in Midtown Manhattan this month. Our research indicates the opening could take place with some new products or promotions on or around May 19th with Steve Jobs in attendance."
MacBook
announced on May 16.
However, our checks indicate that the overall MP3 market may still be decelerating a bit from year-end, as store representatives indicated that demand for all MP3 players remain more subdued, with plenty of inventory from a number of vendors. We believe our checks back recent weaker than expected sales for iPods in Apple’s recently reported fiscal second quarter. Despite the possibility of a slowing MP3 market, we continue to believe sales of video iPods are relatively solid, with many store managers indicating that sales of video iPods may be even stronger than that of nanos.
In the meantime, we wouldn’t be surprised to see Apple cut prices for iPods (especially nanos) near-term to help stimulate demand into new product launches during the weaker summer months. In terms of features, we expect nanos to get a re-design with better clickwheels, more durable faces and perhaps built-in FM radios for some models (radios could also be available for the higher-end HDD-based iPods)."
Price
of iPod nano remains the same throughout summer months. 2G nano arrives in September
with a redesigned case. Clickwheels work the same. No built-in FM radio on any
iPod.
For fiscal year 2006, we forecast unit iPod unit sales of 40.9 million (+82% growth) reflecting solid
demand from new products and strong holiday sales. We continue to believe that Apple is working on a new HDD-based video device that looks like a video iPod with a much larger color screen, but are not certain whether it will be ready in time for the holiday season."
April 20, 2006
We are adjusting our estimates through 2007 to reflect prospects for modestly slower growth for iPods and accessories, partially offset by higher Mac sales along with better sales for software and peripherals.
This estimate now factors in lower iPod unit growth of 36% year-over-year to 8.4 million and accessories sales of $495 million.
We note that these estimates now factor in iPod unit sales of 55.3 million (was 61.9 million) and Mac unit sales of 6.3 million (up from 6 million previously). We believe that prospects for share gains with Macs are getting even stronger with a new operating system (OS X Leopard), a 3 month delay of Microsoft’s Vista and strong acceptance of new Intel Macs.
We believe that Apple’s shares warrant a 3x sales multiple to reflect share gain potential with the transition to the Intel platform and continued solid sales of iPods. While we acknowledge risks including some continued near-term disruptions from the transition to Intel and potential impact from pending lawsuits and French legislation, we continue to believe Apple is one of the best positioned stories in digital media (getting content onto all devices) with EPS upside potential and better relative growth vs. alternative investments.
We estimate that each point of PC market share equates to about $2 billion in incremental Macintosh revenue (vs. approximately $14 billion in revenue for Apple as a whole in fiscal 2005) and estimate that the bottom line impact from each point of share would top $0.20 per share using incremental margin analysis.
We think this announcement could come in conjunction with additional digital content as Apple seeks to further cement its leadership position in the digital home. In addition, we believe it is likely that the video iPod will move from 30GB/60GB to 40GB/80GB by the fall and that the nano could see 6GB and 8GB introductions (currently 1GB, 2GB, and 4GB versions available) by the end of 2006 as lower NAND flash prices provide an opportunity to get more for less."
Movies
available for purchase at the iTunes Store in September.
5.5G
iPod video comes in 30GB and 80GB capacities. No 40GB model.
2G
iPod nano comes in 2GB, 4GB, and 8GB capacities and 5 different colors. No 6GB
model.
In addition, we believe the company may choose to enter new consumer markets including an Apple branded cell-phone over the next year where the company would be able to leverage its market leading innovations and creative designs that have made the iPod such a tremendous hit with customers. Building on success with iTunes, we believe Apple could create a phone that allows for the easy loading of content by docking to a PC or Mac.
April 4, 2006
We believe that Apple's shares reflect second quarter results slightly below consensus with cautious guidance. Weak iPod unit sales [of 9 million units or lower] may be expected.
We believe second quarter EPS over 40 cents could be considered a positive given the recent plunge in shares.
We believe the 'Other Music' segment was solid with 9% revenue growth [since last quarter] helped by accessories and growth in iTunes.
Based on slightly lower estimates, our target adjusts to $95 from $100, still based on an EV/sales multiple of 3x our 2007 fiscal year estimate, higher than Apple’s 'pre-bubble' multiple and its peers due to faster growth and higher margins."
March 21, 2006
We continue to believe that Apple will introduce new Intel-based iBooks (important for education) and a larger MacBook Pro in the June quarter. We forecast Mac units to improve in fiscal third quarter (June) to -1% year-over-year from -9% year-over-year in fiscal second quarter."
17" MacBook
Pro is released in April. The MacBook is released in May.
We still believe that a new video iPod, download service and new iPods are coming this year by the fall."
The
5.5G iPod video and movie download service on the iTunes Store arrives in September.
The initial catalog of movies available on the iTunes Store are from Disney-owned
studios.
February 8, 2006
Our research indicates that new Power Macs could be announced with Intel processors by September, but Apple’s Rosetta emulation software should still be needed to run Adobe’s major high-end applications like Photoshop at that time."
Mac
Pro arrives in August at WWDC.
We believe it is likely that some creative professionals will wait for Adobe to introduce its software in the 'universal' code, which will allow an Intel-based Mac to run the program without translating the code.
Apple believes that most users are unaware of any performance issues when using most Office software (Word, Excel, etc.) and that performance characteristics are currently at acceptable levels. The company also noted that Microsoft, like Adobe, remains a committed partner for Apple in creating software in 'universal' code.
Our surveys and conversations with Apple reveal the level of inquiries regarding the new MacBooks is extremely high, and it is clear that with more models and more applications, Mac sales can benefit. As a result, we believe any slowdown in consumer Mac shipments is only a matter of timing over the next 2-5 months.
We also believe that Apple may choose to enter new consumer markets for iPod speakers and Apple branded cell-phones over the next year where the company would be able to leverage its market leading innovations and creative designs that have made the iPod such a tremendous hit with customers. In addition, we anticipate that Apple will continue to announce new partnerships with content providers and build on the media it currently has available for download."
The
iPod hi-fi is announced on February 28 at a special event. The Intel Mac mini was
also announced at the event.
Still
no Apple cell phone.
January 30, 2006
While we believe there are some near-term risks to earnings upside due to the transition to Intel processors in the first half calendar 2006, we believe several fundamental positives position Apple for continued growth and share price appreciation over the long-term. We are still confident in Apple's product road map – including potential for new iBooks by April in time for the June quarter, a potential "media hub" product (and more services), new iPods into year-end (including a new media player) and even a new cell phone within a year.
In our surveys of Apple retail stores as well as other channels across the country, we have detected that even store representatives are encouraging customers 'to wait' more than we anticipated which has been a modest surprise.
Given the possibility for more sales to be pushed into March and the June quarter when all of Apple professional applications like Final Cut Pro, Aperture and others are available, we are cutting our Mac estimates modestly for the first half of calendar 2006. We still expect significant Mac growth long-term with 29% unit growth forecast for fiscal year 2007.
Our surveys reveal the level of inquiries regarding the new MacBooks is extremely high, and it is clear that with more models and more applications, Mac sales can benefit. As a result, we believe any slowdown in Mac shipments is only a matter of timing over the next 2-5 months and our checks showed that solid demand exists for these products.
Our latest checks do pick some modest loosening of demand in NAND flash within the supply chain that could indicate a slightly more seasonal impact than our very optimistic expectations from only a few weeks ago.
We continue to believe that Apple has the best 'mouse trap' -- not just the best media player, but also the best delivery system (iTunes), the best content partnerships (Disney, NBC, etc.), and most importantly the easiest and simplest access format. We continue to believe Apple is the best positioned to capture growth from digital content trends.
While our estimates remain above consensus, we are cutting our second quarter earnings-per-share (EPS) estimate to 46 cents (was 50 cents) on revenues of $4.7B reflecting modestly lower Mac estimates and a quart-to-quarter decline in iPod sales. Our fiscal year (FY) 2006 EPS estimate is now $2.14 (was $2.24) on revenue of $20.5B (was $21.5B) but our FY07 EPS estimate remains $2.75.
Our checks back some Mac concerns, but we regard the transition as a timing issue."
January 11, 2006
While expectations ran high heading into this keynote in terms of product possibilities, we believe Apple’s performance in 1Q06 far outweighs any product announcements made (or not made) at the event and should drive momentum in shares.
"We are excited about the new Intel Macs and other software products announced at Macworld and believe that Apple continues to innovate and is set to announce several new products over 2006 -- including a new media server, an Apple branded cell phone and additional media content."
No
media server or Apple branded cell phone is released in 2006.
While no new iBook was introduced, it was offset by an iMac announcement and we believe an iBook is likely coming within a quarter or two anyway. We had discussed a media hub, but the new Macs are so powerful -- they are already hubs -- and we continue to believe a hub should be coming later this year with Intel’s Viiv."
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