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Analyst confident in Apple strategy, predicts 1GB nano

post #1 of 20
Thread Starter 
Analysts for UBS Investment Research this week emphasized confidence in Apple's long term strategy and updated their predictions on forthcoming products to include the possibility of a 1GB iPod nano digital music player.

Noting that Apple's shares have fallen 17 percent from recent highs, the firm this week attempted to address some investor concerns that appear to be causing volatility in the stock, including: slower Mac sales in light of the Intel transition, concerns about sequential declines in iPod nano sales and recent negative news stories including speculation about potential competitive offerings from Google and Microsoft.

"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," analyst Ben Reitzes wrote in a research note on Monday. "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."

Intel Macs

Homing in on Intel Macs, the analyst said checks indicate sales of Apple's new iMacs with Intel processors are relatively solid with consumers, but off to a slower start with professionals and "prosumers" who are waiting for more applications to be ready in March and into mid 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," Reitzes wrote. According to the analyst's checks, creative professionals are delaying purchases due to the fact that some high-end Mac based applications are not ready for the Intel chips and applications from Adobe and Microsoft are not ready with universal binaries.

"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," Reitzes wrote. UBS is now forecasting Mac unit sales of 979,000 this quarter versions its previous 1,128,000 estimate, including 294,000 shipments of iMacs. For the 2006 fiscal year, the firm has decreased its Mac unit sale forecast from 5,216,000 to 4,718,000. "We still expect significant Mac growth long-term with 29 percent unit growth forecast for fiscal year 2007," the firm said.

Meanwhile, the firm's survey of Apple retail stores showed a very positive reaction to the MacBook Pro in terms of pent-up demand that could be realized later this year. "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," Reitzes wrote. "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."

iPods

Reitzes also commented on what appear to be recent cuts in Apple's iPod nano orders within the supply chain. "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," he said. However, the analyst believes demand on balance is still very solid and his firm's iPod estimates remain above consensus. For the current quarter, Reitzes now estimate that Apple will ship 10 million iPods verses his previous estimate of 11.3 million. However, the analyst raised his average selling price (ASP) iPod estimates to $226 from $210, due to strong sales of higher priced iPods such as the 30GB and 60GB video iPods.

The analyst also predicts Apple to sell as many as 1 million iPod Radio accessories and says the company appears to be "getting set to 'end of life' the [iPod] shuffle possibly in favor of a 1GB version of the nano."

Competition from Google and Microsoft

Downplaying concerns over potential competition from Microsoft in the MP3 player market, Reiztes said he does not view an MP3 device from Microsoft as necessarily a huge threat at this time, given Apple's head start, leading design and compelling iTunes software. Similarly, the analyst said that even if Google were to eventually launch a competing music service, he believe Apple's partnership with content providers as well as the user friendly design of its iTunes software should continue to drive leading sales of music and video content through its music store.

"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," Reitzes wrote. "We continue to believe Apple is the best positioned to capture growth from digital content trends."

Long Term Positives

Turning to potential positives, the analyst expects iPod accessories, iTunes Gift Cards, and new products to help to drive revenues during the current quarter. Specifically, Reiztes notes that Apple is completely sold out of its iPod Radio accessory, which has been extremely popular with consumers. He also notes that revenue generated from iTunes Gift Cards sold during the holiday season were booked as "deferred revenue" in the company's first quarter of the year. Sales of the cards could boost Apple's "Other Music Products" category this quarter as consumers redeem purchased songs. Reitzes also believes Apple's innovation could deliver exciting new products such as a DVR-capable Mac and Apple-branded cell phone sometime in 2006.

Adjusting Near-term Estimates

"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," Reitzes wrote. "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."

The analyst added, "Our checks back some Mac concerns, but we regard the transition as a timing issue."

UBS Investment Research maintains a "Buy" rating on Apple with a price target of $100.
post #2 of 20
As components get cheaper, a lower-end Nano could make sense.

But I don't see the Shuffle vanishing. A new model to replace the old maybe, but I think Apple will always want SOMETHING in the really low-end player market. Something cheaper than a color-screen Nano can be.
post #3 of 20
Quote:
Originally posted by nagromme
As components get cheaper, a lower-end Nano could make sense.

But I don't see the Shuffle vanishing. A new model to replace the old maybe, but I think Apple will always want SOMETHING in the really low-end player market. Something cheaper than a color-screen Nano can be.

I tend to agree. Maybe they will only drop the 1GB shuffle and keep the 512MB shuffle.
post #4 of 20
Yeah I think the nano will go the other direction. It will start to fill in that gap between 4 gigs and 30 gigs.
post #5 of 20
Quote:
Originally posted by BRussell
Yeah I think the nano will go the other direction. It will start to fill in that gap between 4 gigs and 30 gigs.

Maybe two new nanos to start? 1GB and 6GB?

Pricing might be tough without a rejigger of the upper end (starting at $299).

Maybe they drop the 30GB and shift the 60GB down to $349?

Don't know.

I do think they want to keep doing the following:

- smaller (lighter, thinner, etc.)
- less expensive
- migrate features down the line

I think they'd love nothing more than to have 25-30 million video-capable players out there by then end of this year. It would certainly bolster their emerging video position.
post #6 of 20
Quote:
Originally posted by nagromme
As components get cheaper, a lower-end Nano could make sense.

But I don't see the Shuffle vanishing. A new model to replace the old maybe, but I think Apple will always want SOMETHING in the really low-end player market. Something cheaper than a color-screen Nano can be.

Sure, a cheaper 1 GB would replace the nano's spot as the low-end iPod.

Right now, there are six models in the iPod lineup: 2 shuffles, 2 nanos, 2 iPods.

512MB shuffle ($99)
1GB shuffle ($129)
2 GB iPod ($199)
4 GB shuffle ($240)
30 GB iPod ($299)
60 GB iPod ($399)

Apple could easily add a 1 GB nano at $129 and eliminate the shuffle altogether. Apple wouldn't have a $99 iPod anymore, but the cheapest iPod would be only $30 more and have a color display.

I do think Apple is reaching a point where the size demand for a music-only player will not grow much bigger than the current 4GB nano. The music nerds who want to carry their whole collection around are going to opt for the bigger iPod anyway, and a 4 GB nano can already play well past a full battery charge without landing on the same song twice.

I think the nano and iPod size gains will continue to slow and we'll soon get a video-specific device.
post #7 of 20
Quote:
Originally posted by Porchland
Sure, a cheaper 1 GB would replace the nano's spot as the low-end iPod.

Right now, there are six models in the iPod lineup: 2 shuffles, 2 nanos, 2 iPods.

512MB shuffle ($99)
1GB shuffle ($129)
2 GB iPod ($199)
4 GB shuffle ($240)
30 GB iPod ($299)
60 GB iPod ($399)

Apple could easily add a 1 GB nano at $129 and eliminate the shuffle altogether. Apple wouldn't have a $99 iPod anymore, but the cheapest iPod would be only $30 more and have a color display.

My guess is that they'd keep the 512MB shuffle and do a 1GB nano at $149 (not $129). Or perhaps move the 1GB shuffle to $99 and do a 1GB nano at $149.
post #8 of 20
How much does a 512 mb shuffle cost to make?
It can't be very much.
So if I were apple i would make a $129 1 gig iPod nano and a $49-$69 512 mb iPod Shuffle. Could u imagina a $50 iPod, who ever doesn't have an iPod now b/c of the price would definitely get one. And then there stuck with iTunes. And i do know that apple makes its most of its money on ipods not the music, but once people use itunes they're then stuck with ipods so all of the rest of their mp3 players will be iPods. It's a perfect cycle.
post #9 of 20
Quote:
Originally posted by Chris Cuilla
My guess is that they'd keep the 512MB shuffle and do a 1GB nano at $149 (not $129). Or perhaps move the 1GB shuffle to $99 and do a 1GB nano at $149.

I'll be curious to see where Apple goes with the entry-level price point. From an image standpoint, I would think Apple wants to continue pushing features from the top down and give its entry-level model and cover display.

Maybe I'm just biased toward hoping Apple gets rid of the shuffle by the fact I've always thought the shuffle was ugly. Especially on an armband. I'm still holding out hope that Apple will come out with an iPod sport, something with a rounder look, bolder colors and a more accessible stopwatch.
post #10 of 20
Quote:
Originally posted by swimer15715
How much does a 512 mb shuffle cost to make?
It can't be very much.

When it came out, someone did a cost breakdown and thought it might be about $50-60 in parts.

Quote:
Originally posted by swimer15715
So if I were apple i would make a $129 1 gig iPod nano

Not me. I'd see if I could sell the product that has more features for more $. And then bring the price down later. Don't sell someone a product for $129 if they are willing to pay $149. If you'll notice, Apple has been managing their products (particularly iPod) this way quite well so far.

Quote:
Originally posted by swimer15715
and a $49-$69 512 mb iPod Shuffle.

Maybe more like $79. Gotta go slowly. But, yeah.
post #11 of 20
Quote:
Originally posted by Porchland
I'm still holding out hope that Apple will come out with an iPod sport, something with a rounder look, bolder colors and a more accessible stopwatch.

I'm waiting for a whole raft of iPod products...sport...water resistent...durable for kids...etc. etc.
post #12 of 20
Quote:
Originally posted by Chris Cuilla
I'm waiting for a whole raft of iPod products...sport...water resistent...durable for kids...etc. etc.

Maybe a glossy magazine like Yahoo! Life. (Is that still around?)
post #13 of 20
Quote:
Originally posted by Porchland
Maybe a glossy magazine like Yahoo! Life. (Is that still around?)

Ummm...you lost me.
post #14 of 20
A snarky comment about "a whole raft of iPod products" and vanity projects like Yahoo! Life magazine. I was making the point that I hope the iPod doesn't become a point of derision like so many other tech ideas that tried to remain stalwarts and failed.
post #15 of 20
Quote:
Originally posted by Porchland
A snarky comment about "a whole raft of iPod products" and vanity projects like Yahoo! Life magazine. I was making the point that I hope the iPod doesn't become a point of derision like so many other tech ideas that tried to remain stalwarts and failed.

Got it. I don't think that will happen. But I can easily imagine a variety of iPod variations "tuned" for different user needs and "sub-markets". Still, I think it is more likely that Apple will license Fairplay to a variety of hardware makers to do this before they do it themselves.
post #16 of 20
Is the iPod boombox (if there is one) the first spinoff iPod? A nonPod?
post #17 of 20
Quote:
Originally posted by Porchland
Is the iPod boombox (if there is one) the first spinoff iPod? A nonPod?

I guess we'll both know when/if Apple ever announces it. It kinda sounds like it though.
post #18 of 20
Quote:
Originally posted by Chris Cuilla Maybe two new nanos to start? 1GB and 6GB?

There will never be a 6GB Nano due to the way RAM density works. The next step above 4GB will be 8GB.
post #19 of 20
I also don't see the shuffle vanishing, but I don't see it getting an increase in memory either. And I also wouldn't expect Apple to move below the $99 as the entry price point in the near future. But they've surprised me before.

So if MP3 market share starts to decrease, then by the end of March, based on NAND flash prices, I see:
iPod shuffle (1GB) at $99.
iPod nano (2GB) at $169.
iPod nano (4GB) at $199.
iPod nano (6GB) at $249.
Apple has avoided making two models the same price, so I think the nano will remain below the $299 price of the 30GB iPod.

In June or so, I can see the 30GB go to 40GB at $299. And the 60GB be replaced by a new larger screen video 60GB iPod at $399 or 80GB at $449.

And then another round of iPods with new features in Sept/Oct.
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post #20 of 20
Quote:
Originally posted by Porchland
Is the iPod boombox (if there is one) the first spinoff iPod? A nonPod?

If there is an iPod boombox then I can see it having the following features:

1 - a radio
2 - two slots, one for the nano and one for the shuffle.
3 - able to play music streamed from a computer.
4 - display that will show the menu when using the nano, and a list of songs when using the shuffle like in the 'Party Shuffle' playlist in iTunes.
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