Citigroup says slow iPhone sales may spur early refresh
While previewing Apple's fiscal first quarter earnings due next week, investment bank Citigroup reduced its estimates on the electronics maker and said a sharp reduction in iPhone shipments could signal a refresh as early as April.
Reporting through a research note, analyst Richard Gardner braced his clients for the possibility that Apple could announce revenues from its December holiday quarter that come in "several hundred million below" consensus estimates of $9.9 billion.
Nevertheless, he expects the Cupertino-based company will still manage to beat Wall Street's per-share earnings estimate of $1.39 by around 3 cents, thanks largely to better than expected gross profit margins on its holiday product lineup.
Citing a series of checks, Gardner said strong demand for the recently introduced aluminum MacBooks should have driven roughly 40 percent growth in MacBook shipments and 30 percent growth in overall notebook shipments for the quarter. iPod sales also appear to have weathered the economic storm, coming in at around 22 million, representing relatively flat growth from the year-ago, record-setting quarter.
That said, the analyst noted that Apple's overall PC shipment volumes appear to be tracking down sequentially -- thanks to pullbacks in consumer spending -- at a time when they'd normally see a seasonal uptick in the low to mid single digits.
"This shortfall is entirely due to a sharp drop in desktop demand during the quarter," he wrote. "Our checks suggest that desktop shipments could be down 15-20 percent year-over-year during [the fourth calendar quarter of 2008]."
In other potentially bad news, Garnder cautioned that iPhone shipments for the quarter could come in below 4 million, which would represent a near 50 percent drop off from the 6.9 million units the company sold during the third calender quarter of the year, which embodied the launch of the iPhone 3G.
He said Apple appears to have reduced channel inventories of the handsets leading into the seasonally slower first half of 2009, but added that "checks suggest that this could indicate an earlier than normal iPhone refresh in April or May of this year (versus the normal June)."
To reflect his view that Apple will be amongst the victims of reduced consumer spending for the foreseeable future, Gardner cut his price target on the company's shares to $132 from $153 and reduced his estimates for the next three fiscal years. Still, he reiterated his Buy rating on the stock, which he views as "compelling" at current levels where it's trading at just 9X forward free cash flow.
"If the shares pull back $7-8 around earnings?as implied by the options?we would be aggressive buyers," he told clients.
Looking ahead to the March quarter, the Citigroup analyst expects Apple management to guide revenue and per share earnings "well below consensus."
"We expect revenue guidance of $7-8 billion, gross margin guidance of 30-31 percent and earnings per share guidance of $0.65-0.95 versus consensus revenue and earnings per share of $8.3B and $1.13," he wrote. "While this guidance strikes us as conservative, we also believe that current consensus estimates are too aggressive."
Reporting through a research note, analyst Richard Gardner braced his clients for the possibility that Apple could announce revenues from its December holiday quarter that come in "several hundred million below" consensus estimates of $9.9 billion.
Nevertheless, he expects the Cupertino-based company will still manage to beat Wall Street's per-share earnings estimate of $1.39 by around 3 cents, thanks largely to better than expected gross profit margins on its holiday product lineup.
Citing a series of checks, Gardner said strong demand for the recently introduced aluminum MacBooks should have driven roughly 40 percent growth in MacBook shipments and 30 percent growth in overall notebook shipments for the quarter. iPod sales also appear to have weathered the economic storm, coming in at around 22 million, representing relatively flat growth from the year-ago, record-setting quarter.
That said, the analyst noted that Apple's overall PC shipment volumes appear to be tracking down sequentially -- thanks to pullbacks in consumer spending -- at a time when they'd normally see a seasonal uptick in the low to mid single digits.
"This shortfall is entirely due to a sharp drop in desktop demand during the quarter," he wrote. "Our checks suggest that desktop shipments could be down 15-20 percent year-over-year during [the fourth calendar quarter of 2008]."
In other potentially bad news, Garnder cautioned that iPhone shipments for the quarter could come in below 4 million, which would represent a near 50 percent drop off from the 6.9 million units the company sold during the third calender quarter of the year, which embodied the launch of the iPhone 3G.
He said Apple appears to have reduced channel inventories of the handsets leading into the seasonally slower first half of 2009, but added that "checks suggest that this could indicate an earlier than normal iPhone refresh in April or May of this year (versus the normal June)."
To reflect his view that Apple will be amongst the victims of reduced consumer spending for the foreseeable future, Gardner cut his price target on the company's shares to $132 from $153 and reduced his estimates for the next three fiscal years. Still, he reiterated his Buy rating on the stock, which he views as "compelling" at current levels where it's trading at just 9X forward free cash flow.
"If the shares pull back $7-8 around earnings?as implied by the options?we would be aggressive buyers," he told clients.
Looking ahead to the March quarter, the Citigroup analyst expects Apple management to guide revenue and per share earnings "well below consensus."
"We expect revenue guidance of $7-8 billion, gross margin guidance of 30-31 percent and earnings per share guidance of $0.65-0.95 versus consensus revenue and earnings per share of $8.3B and $1.13," he wrote. "While this guidance strikes us as conservative, we also believe that current consensus estimates are too aggressive."
Comments
Apple will be amongst the victims
Yeah OK.
The last thing that Apple is .... is a victim.
1- AT&T 3G Network isn't all it is promoted to be, with very spotty coverage, you may get 3g from one tower, but good luck if you are driving and switching between towers, and ... just no 3G in many areas of major cities like NYC or LA.
2- Iphone 3G is just a retread on the already familiar launch model. looks the same, functions the same with the exception of the addition of the 3G tech and two color choices.
3- Phone Service is expensive, in this day and age, the phone and data plan is just plain expensive for alot of people. AT&T, ROGERS and the other carriers providing the phone make it among the most expensive plans to use, over time, you pay alot of money.
If apple wants the iphone to succeed better than it is tracking right now, they need to open it up and allow people to buy the phone and use it on the carrier they choose. Also, Apple needs to upgrade the phone. Below is the phone most people would drool over.
Consumers want a better speakerphone, high resolution camera/flash, keyboard, interchangable battery. Also cut & paste would be nice, so would the ability to not have disabled app's which the phone won't allow full access.
Doesn't take a rocket scientist to see that the economy will effect how many consumers, but there are alot of factors
1- AT&T 3G Network isn't all it is promoted to be, with very spotty coverage, you may get 3g from one tower, but good luck if you are driving and switching between towers, and ... just no 3G in many areas of major cities like NYC or LA.
2- Iphone 3G is just a retread on the already familiar launch model. looks the same, functions the same with the exception of the addition of the 3G tech and two color choices.
3- Phone Service is expensive, in this day and age, the phone and data plan is just plain expensive for alot of people. AT&T, ROGERS and the other carriers providing the phone make it among the most expensive plans to use, over time, you pay alot of money.
If apple wants the iphone to succeed better than it is tracking right now, they need to open it up and allow people to buy the phone and use it on the carrier they choose. Also, Apple needs to upgrade the phone. Below is the phone most people would drool over.
Consumers want a better speakerphone, high resolution camera/flash, keyboard, interchangable battery. Also cut & paste would be nice, so would the ability to not have disabled app's which the phone won't allow full access.
I'm guessing you don't actually have an iPhone 3G, because your analysis makes no sense. I've taken my iPhone 3G on car trips, into NYC, and elsewhere. The GPS (which isn't in the old iPhone) is great and the coverage is good. Yes, sometimes you fall down to EDGE in the country which is fine to get Google Maps (without satellite imagery) on the move and do email. I had full bars and 3G everywhere except the subway on my visit to NYC.
And users don't really care about interchangeable battery or whether the SDK has full access to the phone. A better camera would be nice, but the iPhone is already the most popular phone on Flickr, so apparently a lot of folks are making due. A keyboard? Removable battery? Not if it changes the form factor, which is perfect for the pocket. Yes, copy & paste... you have one valid point which has been reiterated everywhere. Alternate carriers? The only other GSM in the US is T-Mobile and the US is their biggest market, so that's probably not really having any effect.
In short, Apple needs to continue down the same path they've been on, add a few features, and drive down costs.
Doesn't take a rocket scientist to see that the economy will effect how many consumers, but there are alot of factors
1- AT&T 3G Network isn't all it is promoted to be, with very spotty coverage, you may get 3g from one tower, but good luck if you are driving and switching between towers, and ... just no 3G in many areas of major cities like NYC or LA.
2- Iphone 3G is just a retread on the already familiar launch model. looks the same, functions the same with the exception of the addition of the 3G tech and two color choices.
3- Phone Service is expensive, in this day and age, the phone and data plan is just plain expensive for alot of people. AT&T, ROGERS and the other carriers providing the phone make it among the most expensive plans to use, over time, you pay alot of money.
If apple wants the iphone to succeed better than it is tracking right now, they need to open it up and allow people to buy the phone and use it on the carrier they choose. Also, Apple needs to upgrade the phone. Below is the phone most people would drool over.
Consumers want a better speakerphone, high resolution camera/flash, keyboard, interchangable battery. Also cut & paste would be nice, so would the ability to not have disabled app's which the phone won't allow full access.
Wow, short sighted on all 3 counts.
1. Coverage is fine, I was making calls from the middle of the Smoky Mountain National Park, and have yet to experience a dropped call in any area I have been, Not saying that coverage is EVERYWHERE, but it is everywhere I would expect it to be.
2. You forgot the addition of GPS, and the iPhone OS 2.0. The addition of GPS alone has dramatically changed how this phone can be used.
3. AT&T plan has cost far less than ANY blackberry plan I've ever had. AT&T has offered to buy out contracts for a lot of companies I know to switch to iPhones, they no longer pay extra fees to link their iPhone to their Exchange Servers the way Blackberry did.
If consumers want all of the stuff you state at the end there, then why has it sold so well? My last phone had an interchangable battery, but by the time I needed to replace the battery, it was no longer available, speakerphone? meh, I've taken 10 pictures with my iPhone, often forget it even has a camera, I will agree with cut and paste, that is coming though.
Paying that much more for a data plan feels just like long distance plans used to. Think different!
Introducing a new product is not likely to be successful in the face of weakening consumer demand in a receding market. Apple figured this out when they KEPT the original White MacBook around. The most profitable way forwrad for Apple would be to utilize there existing manufacturing efficiencies. which would mean to lower prices on the existing models and add a new model above it to differentiate. ie, expect the 3G phone to be offered in 8/16/32GB models with prices dropping one tier. I admit this ignores the iPhone Nano rumors, but I still think that'll be a Asian market only phone...
If apple wants the iphone to succeed better than it is tracking right now, they need to open it up and allow people to buy the phone and use it on the carrier they choose. Also, Apple needs to upgrade the phone. Below is the phone most people would drool over.
I think Apple has succeeded with the iPhone already. How many more record quarters do they need to break before you determine Apple's success rate? Opening up to more networks is a moot point. Every provider has an exclusive phone. Why isn't anyone ripping on Palm and screaming to them for the Sprint deal?
Consumers want a better speakerphone, high resolution camera/flash, keyboard, interchangable battery. Also cut & paste would be nice, so would the ability to not have disabled app's which the phone won't allow full access.
Let's see:
Speakerphone? Nope. I don't want to hear my conversation out loud and especially those from other people's conversations.
High Resolution Camera? Nope - You want better images, get a real camera. The phone quality is respectable in my humble opinion considering the form factor. A flash, I could handle.
Keyboard? Why? That was the point of the touchscreen. Besides, a physical keyboard is just another mechanical component that will be destined to fail. Don't miss it at all.
Interchangeable Battery? I have never purchased a separate battery for any of my other phones. My first-gen iPhone has yet to have any noticeable battery fade and when the time comes when the battery does die, I'll probably buy whatever the next upgraded phone anyways. Need a 2nd battery? You can buy 3rd-party battery packs that plug into the dock connector. End of story.
Cut & Paste? Whatever. It's a phone. Not a PC. I'm not missing it.
App Store? You're not being clear on this. Aside from all the crap on the AppStore, Apple is continuously improving the store. They are doing a pretty darn good job considering they are really the first to do it this way. I kind of wish Apple would do something to reduce the amount of crap on the AppStore but they are kind of between a rock and a hard place because developers whine about not being allowed to post another pull-my-finger-farting app yet users complain that Apple allows too much crap on the AppStore.
Citi is wrong on this... as usual frankly.
Introducing a new product is not likely to be successful in the face of weakening consumer demand in a receding market. Apple figured this out when they KEPT the original White MacBook around. The most profitable way forwrad for Apple would be to utilize there existing manufacturing efficiencies. which would mean to lower prices on the existing models and add a new model above it to differentiate. ie, expect the 3G phone to be offered in 8/16/32GB models with prices dropping one tier. I admit this ignores the iPhone Nano rumors, but I still think that'll be a Asian market only phone...
I think this is right, although, as I said in another thread, I don't think there ever will be an iPhone Nano-- just an 8GB at $100 with 16 and 32GB talking the current slots. I also think it's likely that there would be some hardware refinements on the new models to entice the upsell.
Consumers want a better speakerphone, high resolution camera/flash, keyboard, interchangable battery. Also cut & paste would be nice, so would the ability to not have disabled app's which the phone won't allow full access.
The higher resolution camera with flash is definitely on my lists of wants for the iPhones. The one area of modern photography that Apple doesn't seem to understand that personal point and shoot cameras are in the process of merging into phones. The sliding keyboard with gaming controls I wouldn't mind either.
Doesn't take a rocket scientist to see that the economy will effect how many consumers, but there are alot of factors
1- AT&T 3G Network isn't all it is promoted to be, with very spotty coverage, you may get 3g from one tower, but good luck if you are driving and switching between towers, and ... just no 3G in many areas of major cities like NYC or LA.
People always complains about coverage whether it is Verizon, AT&T, T-Mobile .. etc. You will always find people who are not satisfied.
2- Iphone 3G is just a retread on the already familiar launch model. looks the same, functions the same with the exception of the addition of the 3G tech and two color choices.
What's wrong with making a new phone based on an already successful previous model? If you have been around during the 1st generation iPhone you would realize that all people wanted were 3G, GPS, and third party apps. In my opinion Apple delivered everything.
3- Phone Service is expensive, in this day and age, the phone and data plan is just plain expensive for alot of people. AT&T, ROGERS and the other carriers providing the phone make it among the most expensive plans to use, over time, you pay alot of money.
Owning a smartphone is expensive whether it is an iPhone, BB, Android, or the upcoming Palm Pre. This is why they were not popular among the public.
If apple wants the iphone to succeed better than it is tracking right now, they need to open it up and allow people to buy the phone and use it on the carrier they choose. Also, Apple needs to upgrade the phone. Below is the phone most people would drool over.
Consumers want a better speakerphone, high resolution camera/flash, keyboard, interchangable battery. Also cut & paste would be nice, so would the ability to not have disabled app's which the phone won't allow full access.
I am just amazed that people still think higher resolution means better pictures! Phone cameras picture will look terrible even if you have 5MB camera. No matter how high the resolution is you will not get the full potential because the sensor and lens are tiny. My 2MB 6 year old digital camera takes batter pictures than my wife's 8MB pocket camera because mine have much bigger lens and sensor. Until someone comes up with at least a better sensor we are stuck with terrible pictures even with higher resolution (for phone cameras).
Doesn't take a rocket scientist to see that the economy will effect how many consumers, but there are alot of factors
1- AT&T 3G Network isn't all it is promoted to be, with very spotty coverage, you may get 3g from one tower, but good luck if you are driving and switching between towers, and ... just no 3G in many areas of major cities like NYC or LA.
2- Iphone 3G is just a retread on the already familiar launch model. looks the same, functions the same with the exception of the addition of the 3G tech and two color choices.
3- Phone Service is expensive, in this day and age, the phone and data plan is just plain expensive for alot of people. AT&T, ROGERS and the other carriers providing the phone make it among the most expensive plans to use, over time, you pay alot of money.
If apple wants the iphone to succeed better than it is tracking right now, they need to open it up and allow people to buy the phone and use it on the carrier they choose. Also, Apple needs to upgrade the phone. Below is the phone most people would drool over.
Consumers want a better speakerphone, high resolution camera/flash, keyboard, interchangable battery. Also cut & paste would be nice, so would the ability to not have disabled app's which the phone won't allow full access.
Deleted large iPhone Pro photo from quote for brevity
1- All phone carriers have good and bad points. ATT doesn't have as much coverage as Verizon, Verizon strips capabilities from some phones and replaces it with their own software and charges you extra for the service.
2- The iPhone 3G is an incremental upgrade for the already revolutionary original iPhone. Revolutionary perhaps not in hardware, others had touchscreens first, less buttons, etc. Revolutionary in software, GUI, function, and easy of data/media syncing. Their are a few main points for the iPhone, one of them is you upgrade the software for FREE for more functionality, not so much the hardware with a new price tag. I don't see how you can list that as a downfall when your next point is about price.
3- Go to another nationwide carrier and get a cheaper 3G data plan than what is offered with the iPhone. They are hard to find. In fact, all the major players in the US price they're plans pretty much identically. You might get a cheaper plan, but you will most certainly get a cheaper (do not read as less expensive) phone with less function. You pay less for less. In fact, the iPhone has the best, easiest, and most enjoyable mobile internet I can find on a phone. I feel bad for the Blackjack and Moto Q owners that pay the same $30 data plan for a much worse internet experience. Do I want the plans to be cheaper? Absolutely! But if you want a great phone that can access great amounts of meaningful data easily, my guess is you'll have to pay for it.
Apple was smart to offer a GSM phone, so that it works around the world. I truly believe Verizon wouldn't want the iPhone if Apple made a CDMA model, not unless they could replace all the default iPhone apps with their own music, movie, nav, stocks, and weather apps, charge you $30 for unlimited data, $4.99 for nav, and limit the music store to verizon's store with their own pricing and availability.
Adding a keyboard to the iPhone is counter-intuitive. Another main point of the iPhone is software buttons as opposed to hardware buttons. The keyboard is there when you need it and gone when you don't, without the mechanical, form factor, and unergonomic problems of a slide/flip/fold/swivel/turn-on-it's-side physical hardware that can break. If the software breaks, restart/restore. If the hardware breaks, buy a new phone. SOME customers want a physical keyboard, not all. Some people want PCs, not all.
I think the speakerphone is decent. It's not a megaphone, but I don't think most care about publicizing their conversations too loudly, business or private.
Interchangeable battery? I'm leaving that one alone. Their are positives and negatives to everything.
The camera is the only point that I can agree with. A better camera and better camera software would be nice. But I don't think people buy phones to do digital photography. As long as the picture is pretty clear and gets the subject matter across, that's what most customers ask for in a mobile phone camera. And there will always be incremental hardware upgrades.
While I agree that now is not the time to introduce new designs on the high end, it's the perfect time to make sure the "budget" options are appealing and competitive.
This article just backs up the notion that this will be the quarter when apple's lagging in updating their products on the low end, particularly the mini, really catches up to them.
While I agree that now is not the time to introduce new designs on the high end, it's the perfect time to make sure the "budget" options are appealing and competitive.
Totally agee! I was looking forward to an iMac and Mini update. I was warming-up to the fact that I would have bought a Mini if it was a good valued update.
The plan is what is killing it, especially the new 3G plan. You get more 3G coverage with Verizon or Sprint and T-Mobile is cheaper than AT&T even with their new 3G coverage. Thats why I think Apple could help lower prices by allowing true competition on the carriers. I don't think the telcos are hurting and their $.20 text message shows how good they are at over charging at any given time.
I also like what some carries are doing overseas with data such as peak/off peak and day passes. NetCom in Norway which carries the iPhone 3G has plans for its smartphone where you pay a certain fee for unlimited data for one day. And it doesn't cost more if you subscribe to a month of service or if you just did it day to day (and used it everyday). I think people want flexibility and not everyone is prepared for $30 dollars more each month for some light email (and nobody wants to check email on a cheap Nokia).
I think for me the screen size and layout is the best, something obviously I was against before mostly because a larger Windows Mobile phone was more bulky than a smaller one and didn't have more resolution for the increased size. But other phones are catching up or exceeding in certain areas like the Palm Pre, HTC Touch HD etc...
I'm on T-Mobile and I used 60MB last month. All I do is email, maybe a website or two, and weather. Charging me $30 is not something I can justify. I do want a nice screen phone that is better than my current Tilt which I find the screen is two small compared to iPod Touch. Another thing that drives me mad, and i'm sure has upset other people (as I've heard complaints) is the lack of true IM like AIM or Yahoo. WHERE IS THE PUSH?
I can't decided between real keaboard and a software one. But it should be a choice and can be done much the same way HTC is doing.
I think the problem is Apple went into the iPhone not truly knowing what they wanted to achieve or what customers wanted. They wanted to try iPod + Phone again but do the mass storage that really pushed the iPod out the door. But they never thought about 3G, Apps, or IM services. Its obvious that some areas are lacking and showed when the 3G was launched to many service issues. Also working with all networks was a second thought as well.
Apple would do go to step back and do a total redesign that incorporates more of what people are wishing, because then truly what would people say to an iPhone with a better camera, video recording, copy & paste, a good solution to IM Services, a clean up to the APP Store (my hope was that Apple wouldn't turn into what Handango is for WM where you wade thru crap).
I cant help worrying that the Mac & the iPhone are just too expensive to ever become as sucessful as the iPod which is the only product Apple has ever priced competiviely.
iphone cost about the same as their competition, and ipods cost more than their competitions, get a clue.
I think Apple has succeeded with the iPhone already. How many more record quarters do they need to break before you determine Apple's success rate? Opening up to more networks is a moot point. Every provider has an exclusive phone. Why isn't anyone ripping on Palm and screaming to them for the Sprint deal?
You don't know the iphone is the only phone tied to one carrier?