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Prudential upgrade boosts Apple shares

post #1 of 23
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Shares of Apple Inc. rose more than 2 percent in morning trading after analysts at Prudential Equity Group upgraded shares of the company, saying a number of new product catalysts, including an early operating system release, should help drive growth in the near term.

"Based upon recent checks, both Prudential Equity GroupSoftware analyst John McPeake and we believe that Adobe’s CS3 and Apple’s Leopard OS will be released simultaneously at the end of March, about 1-2 months ahead of Street expectations," analyst Jesse Tortora wrote in a note to clients. "We think this powerful one-two punch makes a great deal of sense, as it will likely unleash a flood of pent-up demand for both companies’ products."

Tortora's comments arrive on the heels of several online reports, including one from AppleInsider, which shed strong doubt on Apple's ability to wrap up a robust Leopard release within the next three weeks, given a recent developer release of the system update still laden with issues. The analyst did not cite his sources on a late-March release.

"Consistent with historical patterns, we expect the late March release of Leopard to provide a boost to software revenues for at least the next couple of quarters," he continued. "The last Mac OS (Tiger) was released in April 2005, about 18 months after the previous version release, and resulted in an increase in June quarter software revenue by ~45 percent quarter-over-quarter and ~65 percent year-over-year."

For Leopard, Tortora is modeling for a slightly higher sales boost of 57 percent quarterly and 75 percent yearly, primarily a result of the longer product cycle and larger Mac install based since the Tiger release.

In his note to clients, the Prudential analyst also cited swelling gross margin and impending consumer electronics product launches as near-term positives that should help drive profits and spur growth.

"We view the company’s long-term gross margin model of 28 percent -30 percent as conservative and see margin upside over the next several quarters due to component cost declines and a richer product mix from sales of Leopard, Mac Pro and MacBook Pro, and iPhone," he wrote. "We expect new product ramps including iPhone and a flash-based widescreen video iPod with new functionality (wi-fi, GPS) to drive growth in [the second half of 2007]."

Tortora said Apple's next generation video iPod will be launched later this year and include "flash instead of a hard drive, a wider touch screen similar to that of iPhone, wi-fi to enable the transfer of digital content from Apple TV, and GPS functionality." The new features, he said, will compel the company to introduce the player at at higher price points than its current video iPod ($249 for 30GB and $349 for 80GB), which he believes will help boost to revenue growth.

"Moreover, we see higher unit demand due to the substantial advantages flash memory brings including a thinner and lighter form-factor, longer battery life, and better durability," he continued. "We point to how the introduction of the flash-based iPod nano (replaced HDD based iPod Mini) boosted overall Apple iPod sales in late 2005 as the case study. Moreover, we believe the addition of GPS functionality could position the iPod as the central hub for all digital content (music, movies, GPS) in automobiles, creating yet another market opportunity for Apple."

Tortora upgraded shares of the Cupertino, Calif.-based Apple to Overweight from Neutral weight, with a new price target of $105 per share.
post #2 of 23
It would be nice if Leopard came out with CS3 especially as Adobe has confirmed the March 27 launch date (read about it here), but after reading all the comments by those folks who actually have the developer builds, I have a hard time thinking it will come much before WWDC.

But I the more I think about it, I can't see Apple diluting their biggest news item with a joint release. It just doesn't make sense from the company's point of view.
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post #3 of 23
It would make a good 1-2 punch, but get real. Current seeds of leopard are far from ready and that doesn't even take into account the "top secret features."

If anything at the end of March, Apple could only announce it, NOT release it -- unless Steve Jobs pulled some black magic out of his hat (turtleneck?). Once Leopard goes goldmaster, it takes 2-4 weeks for media distribution.
post #4 of 23
Apple is throwing out fake builds to throw everyone off. They did it with Intel OS X and iPhone.
post #5 of 23
Fake builds just seems like such a bizarre move, I can't see even Apple doing that (come on, wide beta testing is what makes a stable OS). I'll eat my words if it's released in march, but I'm guessing that the analyst just has it wrong .
post #6 of 23
Wasn't it bizarre for Apple to keep a secret version of Intel OS X under wraps for 5 years without beta testing? And, if these screen shots were of the actual OS, why isn't Apple sending out cease and desist letters like they did with Tiger?

Quote:
Originally Posted by bdj21ya View Post

Fake builds just seems like such a bizarre move, I can't see even Apple doing that (come on, wide beta testing is what makes a stable OS). I'll eat my words if it's released in march, but I'm guessing that the analyst just has it wrong .
post #7 of 23
Quote:
Originally Posted by bdkennedy1 View Post

Wasn't it bizarre for Apple to keep a secret version of Intel OS X under wraps for 5 years without beta testing? And, if these screen shots were of the actual OS, why isn't Apple sending out cease and desist letters like they did with Tiger?

But I'm sure the Alpha tested the crap out of it.

Apple only sends out C&D letters on fakes
post #8 of 23
Quote:
Originally Posted by bdkennedy1 View Post

Wasn't it bizarre for Apple to keep a secret version of Intel OS X under wraps for 5 years without beta testing? And, if these screen shots were of the actual OS, why isn't Apple sending out cease and desist letters like they did with Tiger?

No actually it wasn't that bizarre. For one thing Mac OS X evolved from what OpenStep would've been and NeXTstep was. Intel compatibility was on the list of their features. And the AIM (Apple IBM Motorola) Deal happened when Steve was gone from Apple and he probably didn't trust IBM and Motorola to continue to make competitive processors. OS X is also highly portable thanks to Darwin, so it doesn't matter what the CPU is because Apple can support it any time they wish, they just have little interest in doing so outside of their own products.

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post #9 of 23
GPS would be great, but I see it more likely in a future updated iPhone, or some entirely other device, not an iPod. That would be a weird addition that would increase the cost of a music player.
post #10 of 23
Quote:
Originally Posted by nagromme View Post

GPS would be great, but I see it more likely in a future updated iPhone, or some entirely other device, not an iPod. That would be a weird addition that would increase the cost of a music player.

Throwing GPS in the article like that was Pointless and Absurd. The iPod doesn't need either WiFi (slower then syncing by Cable, the iPod cannot by design manage it's own music without iTunes due to restrictions in FairPlay and the way it's designed to sync with iTunes) or GPS (just plain pointless in a Digital Media Player)

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post #11 of 23
Releasing Leopard without widespread beta testing seems very risky. But perhaps Apple has expanded their own beta testing team to the extent that it is producing the same beta testing results as the external developers do. The Leopard builds Apple are feeding the developers with probably contain Leopard code, but if Apple is gonna live up its own Leopard hype these builds are probably just for beta testing the changes of the core of Mac OS X, like hardware, audio, graphics and other sorts of drivers, leaving the rest of the OS behind closed doors. But late march seems crazy.
post #12 of 23
Jobs said this would be the year of Macs. So how about this for a calendar:
  • March 27: Adobe releases CS3 (confirmed).
  • April 5: Apple shows off Leopard's spots at PhotoShop World (my birthday). Announces that it ships in June.
  • April 15: Apple unveils new Mac Pros and high-end displays at NAB.
  • June 11: Apple releases Leopard into the wild at the beginning of WWDC. iLife07 and iWork 07 set free at the same time.
  • July/August: Apple ships new Mac Books Pros and Minis.
  • September/October: Apple releases new Mac Books and iMacs.

That would be a pretty full year.

And of course, in non-Mac related news there would be the iPhone in June and new iPods probably in late fall or early winter--just in time for Christmas sales.
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post #13 of 23
Apple has its own beta testing team. Developers are not really beta testing the OS. The developer seeds are sent out only so that developers can beta test their software with the new OS, NOT beta test the OS itself. Apple is only interested in feedback from developers if they're having problems getting their software to work with the new OS.

It wouldn't surprise me if Apple left known bugs in the seeds on purpose. The bugs don't have anything to do with how the core functions with the various apps. If PhotoBooth 2.0 doesn't work well, who cares? What does that have to do with how Adobe CS3 works with Leopard? Do you honestly think Adobe would come out with universal CS3 for the Mac in 3 weeks if they weren't sure it'd work with Leopard? Come on, people, get real!
post #14 of 23
I wonder if CS3 is actually resolution independent on Leopard. Would be annoying to need to wait until CS4 comes out to use this awesome feature on high-res Macs.
post #15 of 23
Quote:
Originally Posted by donebylee View Post

Jobs said this would be the year of Macs. So how about this for a calendar:
  • March 27: Adobe releases CS3 (confirmed).
  • April 5: Apple shows off Leopard's spots at PhotoShop World (my birthday). Announces that it ships in June.
  • April 15: Apple unveils new Mac Pros and high-end displays at NAB.
  • June 11: Apple releases Leopard into the wild at the beginning of WWDC. iLife07 and iWork 07 set free at the same time.
  • July/August: Apple ships new Mac Books Pros and Minis.
  • September/October: Apple releases new Mac Books and iMacs.

That would be a pretty full year.

And of course, in non-Mac related news there would be the iPhone in June and new iPods probably in late fall or early winter--just in time for Christmas sales.

I don't think much of that timetable. Here's mine:
  • Soon: updated Mac mini
  • March 27: Adobe releases CS3
  • Late March/early April: Apple announces Leopard on a Wed., arrives in stores on a Sat.
  • April 15: Apple unveils new Mac Pros, new displays, FC Studio 6 at NAB
  • May: New iMacs, followed by MacBook Pros
  • June: New MacBooks, iPhone
  • October/November: updated iMacs, MacBook pros, MacBooks (Penryn)

As you can see, I'm calling for two Mac upgrades this year. A major upgrade this spring, followed by a minor upgrade in the fall.
post #16 of 23
I think Leopard announced in March alongside Creative Suite and shipping 3-4 weeks later (closer to NAB) is possible but maybe not probable.

Apple could have put a strict system in place for this release. Testing a few features externally in the developer builds and letting testers abuse certain components with their apps. Once a certain amount of feedback/testing has been done it is passed on to a large internal Beta testing unit and semi-completed before being added to the release candidate. It would be a great way to release Leopard and get the WOW Factor x10 from a surprise marketing point of view.

I think it would still be heavily buggy though and you'd probably be looking at a release more akin to 10.0 rather than 10.3 or 10.4!

The thing that makes me suspicious is how quiet it is on all fronts. The developer releases don't seem to be coming quick enough but there are a few reports out there, of the OS wrapping up.

We just need to wait and see. I'm sure it's possible but im sort of hoping it's not true.
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post #17 of 23
Quote:
Originally Posted by Rolo View Post

Apple has its own beta testing team. Developers are not really beta testing the OS. The developer seeds are sent out only so that developers can beta test their software with the new OS, NOT beta test the OS itself. Apple is only interested in feedback from developers if they're having problems getting their software to work with the new OS.

It wouldn't surprise me if Apple left known bugs in the seeds on purpose.

Then how does this account for those of us who are in Apple's customer seeding program, Appleseed? This is their equivalent of a wider beta testing circle since it includes customers from a wide variety of backgrounds and professions. We receive the exact same build the developers receive so I guess it means we've been wasting our time filing bug reports and enhancement requests on all these fakes they are sending out. The Apple RDF must be that powerful to cause us to waste our time in this manner.
post #18 of 23
The only way this might make sense is that....

1) The new features are so separate from the kernel and other frameworks that they can be tested reasonably independently and don't effect third party code which can't use them (yet) because they don't know about them.

2) The bugs that still are in the code are due to the fact that they have been corrected as part of the 'new' features.

3) Yes, I know 2 and 1 are somewhat in conflict but not entirely IF they don't effect third party code testing..

4) Apple believes (right or wrong) that third party code can be reasonably tested with the current release builds so that it will work with the final Leopard release.
post #19 of 23
Quote:
Originally Posted by physguy View Post

The only way this might make sense is that....

1) The new features are so separate from the kernel and other frameworks that they can be tested reasonably independently and don't effect third party code which can't use them (yet) because they don't know about them.

2) The bugs that still are in the code are due to the fact that they have been corrected as part of the 'new' features.

3) Yes, I know 2 and 1 are somewhat in conflict but not entirely IF they don't effect third party code testing..

4) Apple believes (right or wrong) that third party code can be reasonably tested with the current release builds so that it will work with the final Leopard release.

Wow, I am amazed how involved some of these schemes are. No offense. I am not making fun of anyone, but really, the simplest answer is usually the correct one: Leopard is not yet ready for the wild.
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post #20 of 23
Quote:
Originally Posted by donebylee View Post

Wow, I am amazed how involved some of these schemes are. No offense. I am not making fun of anyone, but really, the simplest answer is usually the correct one: Leopard is not yet ready for the wild.

Overall I would (and probably do ) agree except that analysts, for all their shortcomings, don't typically go this far out on a limb only 3 weeks before an event they're predicting. That leaves too little time with which to invent an excuse for being wrong. (Steve Jobs was kidnapped, etc.) It would seem this analyst has some reason (meaning they've been told something) to make this prediction so close to the time its supposed to happen.
post #21 of 23
Quote:
Originally Posted by physguy View Post

Overall I would (and probably do ) agree except that analysts, for all their shortcomings, don't typically go this far out on a limb only 3 weeks before an event they're predicting. That leaves too little time with which to invent an excuse for being wrong. (Steve Jobs was kidnapped, etc.) It would seem this analyst has some reason (meaning they've been told something) to make this prediction so close to the time its supposed to happen.

I would love for you to be right.

Although with CS3's shipping now clarified as announced on March 27th and shipped "sometime this spring," I just think there's too much coincidence there. And later this spring could certainly be in April, but why announce in March and ship a week or two later?

I think we're looking at late May or early June for both CS3 and Leopard personally.
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post #22 of 23
I agree, the schemes are out there a bit.

I don't believe Apple would not test things as wide as possible. I haven't been testing in the latest Appleseeds but I can't imagine they would waste theirs or our time putting out junk seeds.

Also the way Apple OS dev. use to work (haven't talked to anyone at Apple about this in a while) is that each department works pretty much independently with their Apps and then basically bolts them on the the main OS when ready.

This is done I assume so that things work as independently as possible so that other Apps tend not to interfere/brake one another, a component that falls behind in development doesn't slow the whole process down and things remain pretty secretive between the groups.

If things are still like this then something like the Finder if being updated will be bolted on at some point while the technologies it may depend on like core data, core animation, etc, is pounded on by testing through other means.

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post #23 of 23
Quote:
Originally Posted by tink View Post

I agree, the schemes are out there a bit.

I don't believe Apple would not test things as wide as possible. I haven't been testing in the latest Appleseeds but I can't imagine they would waste theirs or our time putting out junk seeds.

Also the way Apple OS dev. use to work (haven't talked to anyone at Apple about this in a while) is that each department works pretty much independently with their Apps and then basically bolts them on the the main OS when ready.

This is done I assume so that things work as independently as possible so that other Apps tend not to interfere/brake one another, a component that falls behind in development doesn't slow the whole process down and things remain pretty secretive between the groups.

If things are still like this then something like the Finder if being updated will be bolted on at some point while the technologies it may depend on like core data, core animation, etc, is pounded on by testing through other means.

But we are left with the conflict between 'finishing Leopard' and 'amazing Top secret features'. Even with the June 15th release, that's only a little over 3 months away, and if these 'Top secret feature' are part of the kernel or frameworks then its almost too late. Just trying to guess how this all might go together

I can't see a major Finder update, even thought that's an application on top of the system, because the open/save dialog boxes use the same views and they interact with everything.
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