Macs seen as Apple's only remaining growth driver

[AppleInsider]

Investment bank BMO Capital Markets on Monday slashed its price target on shares of Apple Inc. to $140 from $160, saying it believes the company's three growth drivers -- the Mac, iPod, and iPhone -- have been reduced to just one: the Mac.

Given this notion, analyst Keith Bachman (formally of Banc of America) advised clients in a research note that Apple shares now carry a higher risk and are similarly deserving of a lower multiple valuation than in recent past. As such, he said, future per-share earnings upside from the company is likely to result from an expansion of gross margin rather than higher revenues.

"We believe that Apple will be bound by a trading range of $110-$140, vs. our previous comments of $120-$160," Bachman wrote. "With the constant flow of weak iPod and iPhone production estimates out of Taiwan over the past four weeks, we believe that a portion of negative news is in the stock, though not all [...]. Moreover, we believe that the appropriate multiple is more of debate than the unit forecast."

Whereas the analyst had previously valued Apple at 23-24 times fiscal 2009 per-share earnings plus cash, his adjusted estimates suggest the electronics maker is more fairly valued at just 20 times those earnings plus cash.

"We continue to believe that Apple [isn't] pricing its phones aggressively [enough], and needs to sign up more carriers, both of which we believe will serve as catalyst in [the second half of the year], with a July introduction of a 3G phone," he explained. "Hence, we think Apple may have more near-term downside before the stock can move higher at the end of the year."

To reflect his latest assumptions, Bachmean decreased his fiscal year 2008 iPod and iPhone unit sales forecasts from 54.6 million units to 51.1 million units, and from 9.3 million units to 7.7 million units, respectively. However, he increased his Mac estimates for the same time period to 9.4 million units from 9.1 million units.

For the March quarter, the analyst is forecasting 9.5 million iPods (down from 10.5
million) and iPhones of 1.4 million units (down from 2.1 million units). Over the next 45 days, he expects other analysts to instate similar cuts in their iPod and iPhone forecast, which he believes will continue to weigh on Apple shares.

"As importantly, we are now projecting 8.5 million units for [calendar year 2008], below Apple’s targeted unit sale of 10 million units," he added.

In his report, Bachmean argued that Apple should significantly lower the price of its iPhones given the belief that in addition to the $100 in profit from the sale of each unit, the company also generates an additional $200 from each customer over a 24-month period via revenue share agreements with wireless carriers like AT&T.



"More specifically, we believe that the 3G phone will help in that it will enable Apple to more effectively compete in Europe and Japan (new market), as long as Apple is price competitive," he wrote. "From our chart [above], we note that Apple is competitive when including rate plans but very expensive when focused on the initial cost of the handset."

The analyst reiterated HP as his top stock pick in the Enterprise Hardware and Imaging sector, yet maintained an Outperform rating on shares of Apple for the time being.

[ View this article at AppleInsider.com ]

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[Olternaut]

Now more than ever that bloomin SDK for the iphone/ipod touch better impress the hell out of us. It had better impress the hell out of the industry and buying public as a whole. Its success is crucial for the future of the company.....imo.

[macFanDave]

I just got an AppleTV and since the Take 2 upgrade came out, I like it a lot. In two weeks, we've rented four movies and we are considering dropping Blockbuster Online (probably when the iTunes library gets big enough we'll pull the plug on BBO). The speed with which movies can get to you (ready to start in less than 30 seconds with a cable modem) is very impressive, as is the fact that "Michael Clayton" became available the very same day the DVD was released.

My non-techie wife is really enjoying video podcasts and my kid likes YouTube on the big screen. I also think that viewing photos on the big screen is stunning (I have a good 19" LCD monitor, but pictures on the 40" LCD TV are like seeing them all over again).

Are the analysts completely dismissive of this new aspect of Apple's business? My experience with the device has been terrific and all of the reviews targeted to consumers have been positive, although some videophiles have some tech quibbles that are really irrelevant to everyone else. The AppleTV could be a big hit, especially if Apple decides to promote it.

[GQB]

Originally Posted by AppleInsider

"From our chart [above], we note that Apple is competitive when including rate plans but very expensive when focused on the initial cost of the handset.

And the sky is blue?
What are these guys smoking?
Just who uses a phone without a wireless plan?

jeez.

[sworthy]

Originally Posted by GQB

And the sky is blue?
What are these guys smoking?
Just who uses a phone without a wireless plan?

jeez.

...and notice how they use the more expensive plan too...

[JohnnyKrz]

Blah, blah, blah... Apple blah blah.... iPhone, iPods, Macs, Market Share, blah, blah, blah

[Wally]

Originally Posted by macFanDave

I just got an AppleTV and since the Take 2 upgrade came out, I like it a lot. In two weeks, we've rented four movies and we are considering dropping Blockbuster Online (probably when the iTunes library gets big enough we'll pull the plug on BBO). The speed with which movies can get to you (ready to start in less than 30 seconds with a cable modem) is very impressive, as is the fact that "Michael Clayton" became available the very same day the DVD was released...

I couldn't agree more. I had the Apple TV before take two, and it was "fun" but take two is great! We've rented 6 movies in the last two weeks, and dropped NetFlix altogether. NetFlix was great until they started throttling back their "unlimited" service. The quality of the movies is excellent too - and as they start adding more movies the service will be virtually flawless.

From all the "analysis" I've read in the past year, I've really come to believe that these analysts just pull numbers out their ()()...

[jasenj1]

"Hence, we think Apple may have more near-term downside before the stock can move higher at the end of the year."

Interpretation: For the next few months their stock isn't expected to do much interesting, but the end of the year looks better. So if you're a short-term trader looking for quick money, shop elsewhere; if you're a long-term investor, the stock is at a nice price.

"the company's three growth drivers -- the Mac, iPod, and iPhone -- have been reduced to just one: the Mac."

Interpretation: We don't have any idea that Apple may enter new markets or come out with new products.

- Jasen.

[Ireland]

Balls, balls, balls. The iPhone has got Apple more attention in the last year than the Mac has in the last 5 years. These analysts don't know Jack shit.

[echosonic]

Originally Posted by Wally

I couldn't agree more. I had the Apple TV before take two, and it was "fun" but take two is great! We've rented 6 movies in the last two weeks, and dropped NetFlix altogether. NetFlix was great until they started throttling back their "unlimited" service. The quality of the movies is excellent too - and as they start adding more movies the service will be virtually flawless.

From all the "analysis" I've read in the past year, I've really come to believe that these analysts just pull numbers out their ()()...

All these guys can do is chase vendors and suppliers around on the telephone and try to get what is basically insider information.

Then they try to predict futures with a 10% view of the big picture, which, as Apple has shown time and time again, embarrasses them when they are proven wrong.

I have a friend who is a rather large gun dealer and he gets calls from these investment houses all the time looking for information from him about his order levels and such.

He tells them to piss off, and sometimes he feeds them bogus information. He hates when they try to manipulate the stocks and the markets, and really, that's all they're doing.

I see growth at AAPL in the coming 2 years from iPhone, Mac, and Apple TV. I don't know if oyu can call it growth, but i see tremendous profits coming out of iTunes, because every single person I know who has iTunes is renting movies with it now. Everybody, myself included. That is the word on the street, and I think its the most reliable word you can hear.

[JeffDM]

Originally Posted by Wally

I couldn't agree more. I had the Apple TV before take two, and it was "fun" but take two is great! We've rented 6 movies in the last two weeks, and dropped NetFlix altogether. NetFlix was great until they started throttling back their "unlimited" service. The quality of the movies is excellent too - and as they start adding more movies the service will be virtually flawless.

From all the "analysis" I've read in the past year, I've really come to believe that these analysts just pull numbers out their ()()...

Even the throttled Netflix service should get you a lot more movies for the money than Apple.

[Clive At Five]

Whether analysts actually know anything or not, I think bad news is what Apple needs right now.

They've been acting pretty arrogant lately and some humbling definitely would not hurt.

-Clive

[steviet02]

Originally Posted by JeffDM

Even the throttled Netflix service should get you a lot more movies for the money than Apple.

I agree, the only argument against netflix that I have encountered is actually being able to get lastest releases. It's almost impossible, especially in BluRay..

[backtomac]

Originally Posted by GQB

And the sky is blue?
What are these guys smoking?
Just who uses a phone without a wireless plan?

jeez.

Everyone uses a iPhone with a plan but Apple doesn't share revenue with every phone sold.

A significant number are sold and unlocked. Apple's only profit on these is the sale. IMO, this really limits Apple's ability to discount the iPhone much further. If they lower the price more it only makes it look more attractive to unlock.

One solution that minderbinder mentioned was to require activation with an Apple partner telco at the time of the sale. That might work.

[SpamSandwich]

Originally Posted by macFanDave

The AppleTV could be a big hit, especially if Apple decides to promote it.

That's really the whole trick, isn't it? Apple is still sitting on the sidelines with AppleTV because Steve doesn't care about it.

What's going on in the boardroom, Apple?

[SpamSandwich]

Originally Posted by Clive At Five

Whether analysts actually know anything or not, I think bad news is what Apple needs right now.

They've been acting pretty arrogant lately and some humbling definitely would not hurt.

-Clive

Having your stock fall to almost 1/2 of it's recent high is enough to scare the flibbertigibbety out of anyone.

[JeffDM]

Originally Posted by backtomac

One solution that minderbinder mentioned was to require activation with an Apple partner telco at the time of the sale. That might work.

Interestingly, that's how it was done before Apple got into the business, and it's still generally done that way, but Apple had this not-invented-here attitude about that kind of arrangement. I think bucking that arrangement is also part of what confused people into thinking it's not a subsidized device.

[bcode]

Does anyone else notice that wall street analysts are worse than the weather man... They're only right enough of the time, such that we won't ignore them, but wrong enough of the time that you can't trust a damn thing they say.

[fraklinc]

this is what they need to do, raise the price of the iphone back to $599 and offer a instant $200 dollars rebate upon a AT&T activation. That my friend will make unlockers think twice before getting it

[mdriftmeyer]

Bachman doesn't know how to read a spreadsheet.

From his own numbers, he wants Apple to cut $100 off so he can proclaim it the 'cheapest' overall product/service plan to own.

Guess what? It's right in there and it's product quality makes the rest of the competition look like dirt.

[satchmo]

Originally Posted by SpamSandwich

That's really the whole trick, isn't it? Apple is still sitting on the sidelines with AppleTV because Steve doesn't care about it.

What's going on in the boardroom, Apple?

I think it may be a catch-22. It's difficult to hype something that hasn't caught on big time, and it's hard to get there when your library consists of only a few thousand titles.

[XamaX]

Today, Apple announced it is the #2 music seller in the U.S.

It launched Multi-Touch based MacBook Pros, which, IMHO, is a revolution as big as the mouse or the iPhone.

It launched the 2GB iPod Shuffle for less money than the 1GB previously went for.

Apple TV 2.0 is getting amazing reviews.

The iPhone business is only 3% of Apple's bottom line, even if they didn't sell any iPhone its bottom line would still be just 3% hurt.

NAND prices have dropped up to 75%, do these people mention it and how it's going to dramatically increase Apple's ? Nope.

Apple, because of slowing and retracting economy and also because of changing technology, is moving from old style iPods to Touch interface models and calling them handheld computer platform. Because it is already changing, it is decreasing production on existing models. Apple is probably also manipulating its purchasing memory prices by lowering purchases for the moment and the simple fact that Apple is doing that is making prices drop more. That is, if those 'reports' are true since they are mostly vapourware and articles from very dubious sources.

Interest in smartphones is exploding now, according to a survey, because the iPhone hoopla woke people up regarding such devices.

Apple will soon announce a new Mobile Internet Device equipped with 3G cellphone technology and Wi-Fi and BT so that it is always online gadget. It will define the new MID market and everyone will rush to buy one.

Apple is launching a huge Apple Store in downtown Beijing in August in a huge extremely hyped new shopping mall along with most of the world's status brands. Apple will probably then announce negotiations with a major Chinese cell network or start one soon after at the request of them.

Apple will be announcing a 3G iPhone and most probably a stripped down cheaper model - or reset the current models price - by mid year, maybe in time for the Beijing Store launch and announce more EU countries jumping in on the iPhone. Millions have been waiting for the 3G model, when it comes out they'll buy it in droves.

Because of all this, the iPhone will surpass the 10 million goal by a huge amount, easily. And I didn't mention Japan which is also another huge market that will explode after a 3G 2nd generation iPhone.

Anal-ysts are either simply incompetent or preying for the negative news - mostly creating them out of thin air from hear say or 'another anal-yst said' - because they make money on AAPL falling as well as they make money on AAPL bouncing back. "With the constant flow of weak iPod and iPhone production estimates out of Taiwan over the past four weeks" is an excellent example of nothing valid to state and an Anal-yst covering his ass.

I wonder if their employer will keep them at their jobs once all those reports become ridiculed by factual events and products. They'll probably come out saying 'we said that it would happen all along'...

I mean, there was one even making forecasts for 2012, saying that the iPhone will be 25% of Apple's bottom line. Well, if it were so - will there be such a thing as the iPhone in 2012? - then Apple would have become a huge $600+ company and that would be a great thing. And I expect it to be, the way Apple is playing the game, I expect APPL to be the next GOOG very soon, no doubt about it.

[aaplguy]

Take it for what its worth - the most recent quarter the iPhone was the fastest growing smart phone - smart phones market will grow at a rate of 60% plus - This guy feels that Iphone will be stagnant or decrease?http://forums.appleinsider.com/image.../1confused.gif Has he ever used one? http://forums.appleinsider.com/image...1oyvey.gifDoes he know that ATT credited growth last quarter to the IPhone exclusive? http://forums.appleinsider.com/images/smilies/1eek.gif I have an Iphone - when 3g hit I will be buying two additional ones -By the way I have heard many people say that ATT sucks compared to VZ. I would agree that at one time that was true. I just traveled the east coast with an Att Iphone nd a VZ Moto - the Iphone service was as good or better in all areas- and like internet or email -once you have used an Iphone you will not go without one - much better overall device than the Ipod ever was. If Iphone sales trail of it will be a huge marketing blunder by Apple and have nothing to do with the device. I personally see Bachmean looking like a fool in twelve monthshttp://forums.appleinsider.com/images/smilies/lol.gif Apple at 185 and 3g and SDK will give the Iphone continued rapid growth rate.

[SpamSandwich]

Once Apple's iPhone is actually sold in China, not just snuck in, with native Chinese apps running on it... the potential is enormous.

[XamaX]

BTW, what kind of F** up comparison is that - iPhone against crackberry and Samsung windows mobile?

The iPhone - which is only 3% of Apple's business - will only be comparable to smartphones that have only been announced but will take ages to be in stores:
- Sony's XPeria1
- Garmin's Nuviphone (and that is after we see what it can do, right now it's just a piece of plastic in a pic aka mock-up)
- ?

For true & fair comparison one has to include applications, it's got to be an OS that can carry 3rd party apps. WM6 can but that is just laughable as an OS, it is a mess. I know that for a fact, I have to do with one and I just can't stand it, I totally underuse it, it's disgusting, it's like Windows 3.1! HTC - and the XPeria is made by HTC - has been trying to rework WM6's GUI but it's still very poor...

[nothowie]

It is clear that these analysts just don't understand Apple and the iphone and its accounting method. Here are some important facts:

-Iphone earnings are spread out over two years, the amount realized from this account will grow
every quarter dramatically even if Apple does nothing to grow sales like 3g or new models or more competative pricing..you have to know math to realize this. Apple grew this unrealized income(meaning they will recognize these earnings later<over 2 years>) dramatically in the past few quarters to where its now over $1 Billion.

-Apple very likely makes more than $200 per phone contract like this analyst says..most say it is twice that

-When Apple sells a phone that is unlocked, they are still making money..similar to selling an ipod..similar margins and growing now with falling component prices. That's why Apple is not discouraging unlocked phones more by offering activation rebates..because they don't want to risk losing profitable sales to people that they would not otherwise have.

-Apple TV, while still not perfect, should be a big grower of revenues THIS year..mine has been shipped and should be here today or tomorrow.

-Iphone satisfaction is through the roof, much higher than any other phone...why would it not grow especially when Apple has sky high profit margins on the product and room to elinimate the biggest concern of it(besides 3g which will be taken care of shortly)..price? Apple, unlike any other company, understands pricing to maximize sales and earnings.

-For what its worth, my experience with att has been great..great coverage, and I travel all the time, and no surprises on my phone bill.

[amac4me]

2007 was the year of the iPhone. 2008 will be the year of the Mac.

[cacticritter]

I'm thinking that maybe the analysts don't like Apple's diversification. They used to be a computer company and the Mac was their flagship. One thing is clear, it's going to take more than an ultra thin notebook to regain the rock solid confidence these companies once had for Apple. I'm talking something as big as the introduction of OS X. Leopard was a nice upgrade to Tiger, but Apple needs to funnel some of the profits from their other products into developing something really stellar for their operating system next time 'round.

[rain]

I've been saying this for months now... look to pick up Apple stock at $86 in September.

[Gustav]

Originally Posted by JeffDM

Even the throttled Netflix service should get you a lot more movies for the money than Apple.

Sure, if you want to wait a few weeks for them. Netflix is limited by physical supply. The iTMS will never put you on a wait list. You can watch a movie when you want to watch it, not when other people are finished with it.

[TenoBell]

Now more than ever that bloomin SDK for the iphone/ipod touch better impress the hell out of us. It had better impress the hell out of the industry and buying public as a whole. Its success is crucial for the future of the company.....imo.

An SDK is only a development framework. Its not particularly sexy outside of how well it empowers developers to make apps. The SDK will use established tools such as Xcode and webkit with instructions for using iPhone UI and usability requirements.

Whether analysts actually know anything or not, I think bad news is what Apple needs right now.
They've been acting pretty arrogant lately and some humbling definitely would not hurt.

We shall see. The analyst are only pontificating with little actual information. They have no idea what Apple will do next.

Having your stock fall to almost 1/2 of it's recent high is enough to scare the flibbertigibbety out of anyone.

The stock is still 40% over what it was last year.

Apple is making more money now than they ever in history. Every product Apple sells makes a profit. Apple is sitting on $12 billion in cash.

Stock price going down does not necessarily mean a company has really done any wrong. Apple cannot continue accelerated growth forever. It will speed up and slow down.

[UrbanVoyeur]

Oh boy, another round of "let's short apple and profit off the drop".

For the past 6 years, these so-called experts have set low target prices in periodic announcements, then profited on the inevitable share price drop & bounce.

Six - eight months from now the world will be stunned by the news that people continue to buy apple products, that apple makes a profit and that new products and upgrades are in the pipeline.

When they're estimates prove to be overly pessimistic, they won't say "oops", just "thank you, sucker"

[macFanDave]

Originally Posted by JeffDM

Even the throttled Netflix service should get you a lot more movies for the money than Apple.

Before the AppleTV, we would often go several weekends without watching a single movie, so the $20 monthly fee was not that great a deal. Also, I'd put something on my queue and when it arrived, I got a "what the **** was I thinking" moment. Sometimes, we are not in the mood for the three movies we happen to have.

You may be more single-minded about your movies and always ready to watch whatever you ordered. In that case, you're a better man than I, Gunga Din.

In my mental midget, attention-span-of-a-gnat world, the Apple rentals are far better. You see what you want and boom! you are watching it. (I even have the added benefit of being able to take my movies to the local Blockbuster, a 10 minute round trip, to pick something off the shelf there, but it would be subject to late fees.) The paradox Apple is putting me into is that it might encourage us to watch more movies than we used to.

While I am not that pumped about seeing "The Hours", I am hoping that the $0.99 deals will be movies that we would like to watch.

As far as Apple promoting AppleTV, I'll bet they are waiting until their library grows to a respectable size before they go for the big time ad campaign.

[macFanDave]

Originally Posted by TenoBell

Apple is sitting on $12 billion in cash.

Actually, Apple is sitting on over $18 billion in cash!! Analysts are now whining about Apple having TOO MUCH cash! (As a stockholder, I could take a dividend in the form of Apple Store credit ) Pretty far cry from the "beleaguered" days, huh?

[DCJ001]

Originally Posted by TenoBell

Apple is making more money now than they ever in history. Every product Apple sells makes a profit. Apple is sitting on $12 billion in cash.

They've only got $12 billion ???!!! What happened ???!!!

FYI: They're sitting on $18+ billion:

http://www.macobserver.com/article/2008/02/26.7.shtml

[teckstud]

Originally Posted by macFanDave

As far as Apple promoting AppleTV, I'll bet they are waiting until their library grows to a respectable size before they go for the big time ad campaign.

You still need to be able to buy and just not rent for it to succeed to the masses.

[teckstud]

Originally Posted by amac4me

2007 was the year of the iPhone. 2008 will be the year of the Mac.

As in MacBookAir?
I think this shows that the iPhone has been overhyped and over-rated. Hopefully a real new iMac will come out- this time with a new mouse to match the body.

[jlandd]

Financial analysts have hindsight and word it as if it's foresight.

[quinney]

Originally Posted by macFanDave

Actually, Apple is sitting on over $18 billion in cash!! Analysts are now whining about Apple having TOO MUCH cash! (As a stockholder, I could take a dividend in the form of Apple Store credit ) Pretty far cry from the "beleaguered" days, huh?

or maybe they could buy back some of their stock

[guest]

All that, just so he can get a cheap iphone.

Shameful really.