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Strong Mac demand seen Buoying Apple's Q4 results

post #1 of 8
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An analyst at UBS Investment Research says solid demand for Macs should help support earnings estimates for Apple Computer's fourth fiscal quarter of 2006, results of which are due next Wednesday, offsetting deceleration in iPod sales that drew concerns earlier in the quarter.

In a research note sent to clients on Thursday, analyst Ben Reitzes said recent checks indicate strong demand for new Mac products, especially for MacBooks, during the back to school season. On the other hand, he said iPod growth was more subdued due partly to a lack of new iPod shuffle players which have yet to begin shipping.

"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," the analyst wrote. " With regard to Apples 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."

Reitzes believes the Mac "phenomenon" could bridge the gap between now and Macworld, where he expects the company will initiate a new flow of "very exciting" products for the 2007 calendar year. "We also continue to operate under the assumption that Steve Jobs will remain Apples active and effective CEO based on the current facts," he said, referring to the company's ongoing stock options scandal.

Q4 estimates

For Apple's fourth fiscal quarter of 2006, results of which are due next Wednesday, Reitzes is estimating EPS of $0.50, based on 26 percent year-over-year revenue growth to $4.619 billion, versus consensus estimates of $0.50 and $4.67 billion.

"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 26 percent [yearly] growth (flat sequentially) given new shuffles introduced at Apples September 12th event are not expected to ship until mid-October," he explained.

The analyst is also modeling for Mac unit shipments to come in at 1.48 million, representing 20 percent yearly growth (up 11 percent sequentially), which he says "could be conservative given new products and momentum through back to school season."

Reitzes said his EPS estimate of $0.50 reflects gross margins of 28.5 percdent, which factors in favorable component prices and a positive mix shift toward higher margin Macs (from iPods). "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," he said.

Fiscal 2006 estimates

For the entire 2006 fiscal year -- which concludes with Apple's reporting of fourth quarter results -- the analyst is maintaining his EPS estimate of $2.15 on 37 percent yearly revenue growth to $19.1 billion, including iPod unit sales of 38.8 million (up 73 percent yearly) and Mac unit sales of 5.2 million (up 14 yearly).

Reitzes' outlook for the 2007 fiscal year includes EPS estimates of $2.70 based on 21 percent yearly revenue growth to $23.1 billion, which compares to consensus estimates of $2.65 and $22.9 billion. "Our new estimates factor in slightly lower iPod sales of 50.1 million (was 52.8 million) and slightly lower Mac average selling prices (ASPs) given the mix shift toward MacBooks," he wrote. "Our fiscal year 2007 Mac unit estimate remains 6.9 million units (up 33 percent yearly) which could still prove conservative given recent Mac momentum and the upcoming launch of Mac OSX Leopard in the spring of next year." His gross margin outlook is set at 28.8 percent.

Exciting new products in pipeline

Looking ahead, the analyst believes Apple has "many exciting new products" in the pipeline, with "many set to hit in the first half of calendar year 2007." He expects new iPods with bigger screens and more content deals for films to come in the upcoming months. "However we still do not expect any new video iPods until early 2007 after Macworld," he warned.

"In terms of Macs, we expect Apple to upgrade MacBook Pros with new Core 2 Duo processors for the holidays," he continued. "For calendar 2007, checks also indicate Apple may be working on 'ultra-portable PCs' and even notebooks equipped with NAND flash memory in addition to or in the place of hard disk drives, which can offer users an 'Instant-On' functionality for booting."

Apple cell phone

Of all of Apples new product opportunities, Reitzes said he remains particularly excited about cell phones in the long-term, given his view that consumers clearly want content -- but lack true 'plug and play' phones compatible with the PC.

"We expect this product to materialize by the end of [the first half of 2007]," he told clients "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."

Leveraging retail

In addition, Reitzes said Apple could take advantage of its retail distribution to sell the product and create a powerful revenue stream of post-sale accessories.

"Like iTV, we think phone associated partners could be announced long before it even ships since it does not really replace an existing product," he said. "Also, that way Steve Jobs can control the message around the new product line before details leak out."
post #2 of 8
I say 1.64 million Macs .... 1 million portables, 640,000 Desktops
post #3 of 8
amac4me,

I'm with you.

Between 1.6 and 1.7 million Macs.
Charko
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Charko
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post #4 of 8
I doubt the new iPod nanos have better margins than the old nanos had during this past quarter since Apple didn't reduce nano prices at all over the past year, while component prices were rapidly dropping. The new nanos may have better margins than the old nanos when the old nanos were introduced, but not during the last quarter.

So Apple's margins on the nano actually decreased with the intro over the new nanos. The upside is the sales rate increased rapidly with the new nano.
"you will know the truth, and the truth will
set you free."
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"you will know the truth, and the truth will
set you free."
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post #5 of 8
Anyone predicting only a 21% yearly growth rate for the next couple years is in for a sorry surprise.
post #6 of 8
Look at what has happened:

Apple hit on a winner with the iPod. At some point they could see the iPod was going to be big - when? Maybe in 2004. Apple used the iPod momentum to pay for the Intel transition for Macs. iPod sales peaked at xmas 2005 when Mac sales slipped because of the Intel transition.

The Intel transition was deliberately set longer than planned (end of 2006), so Apple could announce the transition completion ahead of schedule (mid 2006), so sales did not slump too much. Now Mac sales are accelerating rapidly because of the level playing field with Wintel boxes. The growth of Mac sales starts to pick up just as iPod sales begin to flatten out because of market saturation levels.

The growing Mac sales will now be paying for Apples' new developement - iTV,iPhone, etc.

Apple are geniuses at market development, innovation and transformation. Where will it end?! Who knows! I am glad I bought stock 18 months ago!

I agree with McHuman - Mac sales annual growth will be 40+% for the next couple of years.
post #7 of 8
Quote:
Originally Posted by AppleInsider

"Like iTV, we think phone associated partners could be announced long before it even ships since it does not really replace an existing product," he said. "Also, that way Steve Jobs can control the message around the new product line before details leak out."

Most sensible thing I've heard about the iPhone yet. It's such a huge and highly anticipated move on Apple's part, and one they need such 3rd party support for, that unveiling it from out of the blue as a "one more thing" makes next to no sense. The iTV announcement was interesting beyond the simple box that it is, as it points to a possible future pattern of pre-announcements for new kit that isn't upgrades to existing Apple models. Where the iTV demo can be seen as a signal to everyone that the movies + iTS + iPod thing is here to stay, an iPhone demo (brand it the top iPod please!) would get all the buzz and market pressure focussed on the task in hand: making the best phone in the world and the ultimate successor to the iPod. I don't see the phone replacing the iPod straight away of course, which is why they could pre-announce it in the first place. But Apple are in the best possible place now to bring long waited for pocket integration to fruition.

Meanwhile, with all that said I still actually care more about Macs! Bring on the Tablet! Or in the meantime the sweetest and smallest ever Mac notebook with as much flash as humanly possible. 8)
post #8 of 8
If they pre-announce the iPhone there's potentially a few million iPop Nano's not being bought.
It's completely different from the iTV situation..
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