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UBS sees Macs helping Apple to another solid quarter

post #1 of 25
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Apple Inc. continued to see solid demand for Macs last quarter with refreshes to both its MacBook lines leading the charge, according to Wall Street analysts at UBS.

In a note to clients Friday, Analyst Ben Reitzes and his associates said strong sales of the new notebook models should provide a slight boost to the Cupertino-based firm's fiscal third quarter earnings on July 25th, simultaneously offsetting some deceleration in iPod sales.

The analyst explained that iPod growth was more subdued during the quarter due to a combination of aging iPod product lines, some anticipation of the iPhone, and normal seasonality. He was, however, bullish on expectations for initial iPhone sales during the final two days of the quarter.

"We believe the June 29 launch of the iPhone was a big success and believe our estimate for 150,000 units sold in the first 2 days is very conservative," he wrote. "While we expect Apple to be conservative (as usual) in its outlook for [the fiscal fourth quarter], we believe the companys new product momentum and upcoming product pipeline should support exceptional revenue momentum through fiscal 2009."

Based upon checks into Macs and his current views on component pricing, Reitzes said his estimates may prove to be too low. He's been modeling Apple to report per-share earnings of $0.71, reflecting yearly revenue growth of 19 percent to $5.21 billion, with gross margin of 32.1 percent and an operating margin of 15.1 percent.

"While less favourable in the June quarter vs. March -- we believe component prices for NAND, panels, DRAM and drives still supported gross margin upside," the analyst told clients. "Our third quarter estimate factors in iPod unit growth of 19 percent year-over-year to 9.6 million which seems to lack any upside given the lack of new products combined with normal seasonality."

On the other hand, the analyst said his Mac growth estimates of 25 percent year-over-year to 1.66 million could prove conservative, especially given the new notebooks and strong demand witnessed across the Mac product line during the K-12 education buying season in June.

For all of fiscal 2007, Reitzes is modeling the Mac maker to earn $3.55 per share, based on projected revenue growth of 23 percent to $23.7 billion, gross margin of 32.2 percent, and an operating margin of 17.0 percent. The estimates factor in projected iPod unit growth of 34 percent to 52.7 million and projected Mac growth of 27 percent to 6.7 million units.

"We believe the iPhone, its associated marketing buzz and boost to retail traffic is in the process of creating another version of the 'multiplier effect' we introduced in early 2004, which was associated with iPods," the analyst wrote. "We believe the iPhone could have a similar effect, driving sales of accessories, bolstering retail traffic, and helping drive more sales of both iPods and Macs."
post #2 of 25
Wait--Apple iPhone Inc. still makes computers?
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post #3 of 25
Correction... "iComputers".

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post #4 of 25
With all the iPhone news, someone finally gets around to mentioning that Apples other profit centers are having a gangbuster quarter, and nobody notices?

My experiences both before the launch and after the launch brought to my attention that there was A LOT more traffic coming to the Apple store. And a lot of boxes and bags going out full of Macs, iPod, iPhones, MacBook Pros. My friend just bought his first new laptop in 6 years, a MBP, and it is sweeeeet. Fast, polished and ultra thin.

Yes, Apple does make other products than the iPhone and they are selling at a record pace as proven by the recent 2 week wait for the new MBP.

Yeah, Apple. Thank you Mr. Jobs
post #5 of 25
Quote:
Originally Posted by AppleInsider View Post

On the other hand, the analyst said his Mac growth estimates of 25 percent year-over-year to 1.66 million could prove conservative, especially given the new notebooks and strong demand witnessed across the Mac product line during the K-12 education buying season in June.


Now imagine how big sales would be to school kids and their parents if we had a midtower that didnt cost $2500... hmmm!
post #6 of 25
Just a note, the entire market right now is at record levels, housing is expected to remain weak and Blackstone recently became a publicly held company... all either signs of the apocalypse or perhaps indicators that we are due for some major corrections?

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post #7 of 25
Quote:
Originally Posted by Nicnac View Post

...if we had a midtower that didnt cost $2500... hmmm!

All signs point to *portable devices* being the primary growth area.
IMHO Apple would benefit the most if focusing even more on *Notebooks*.

Nowadays even the smallest notebooks packs enough power to run most applications fast enough to please most users.

Perfect lineup:
A media hub (Apple TV Pro?)
the iMac
a few (expensive) towers with top of the line internals
... and a lot of MacBook/Pro options - from NanoBooks (for Salarimen on the move) to PowerBook Pros, i.e. heavy video editing 'books.

I, personally, don't see room for a cheapish midtower a.k.a. the plain "Macintosh".
Most gamers prefer tacky chromed flimsy plastic shells with lots of neon lit fans anyway

To gain market shares the entry level MacBooks should be a lot cheaper though.
Then it would be rather easy to convince parent that their kids would benefit more if equipped with a portable computer they could use at school - than if they got a stationary one mainly for gaming and pr0n surfing...
post #8 of 25
Funny, I've never seen anyone buy a Mac, but once, at an Apple Store. That one time was the first purchase out of the University Village Store in Seattle.
post #9 of 25
How is it that people can't understand that Apple doesn't really care about market-share? At least, not in the way that everyone talks about it. What Apple cares about is their share of the high-end market. Get it through your thick skulls! and repeat after me: "Apple will never make a mid-tower because they wouldn't make as much profit as they do from selling iMacs."

This is also the reason that the Mac Mini is being neglected and will be dis-continued soon enough. Apple doesn't want to compete with Dell, who sells mostly shit-computers for almost no profit. Apple cares only about high-profit areas -- this will not change anytime soon, so give the mid-tower a rest!
post #10 of 25
Quote:
Originally Posted by ajhill View Post

My experiences both before the launch and after the launch brought to my attention that there was A LOT more traffic coming to the Apple store. And a lot of boxes and bags going out full of Macs, iPod, iPhones, MacBook Pros.

My sentiments exactly. Apart from the fact that the iPhone is a great device about 1 billion years ahead of the competition and it is a given that it will sell very well, Apple has created an unparalleled buzz around its name that will benefit all of its products.

People see the nice UI and seem tempted to the idea of switching to a Mac. At least almost all of my friends are! Yes, I must admit that I also had a little something to do with it .

To add to the comment above, I also saw a lot of people in Apple stores (especially after the iPhone launch), and not only they were buying but they were also leaving the store smiling! If this is not a success on Apple's part, then I don't know what is .
post #11 of 25
Quote:
Originally Posted by Denton View Post

and repeat after me: "Apple will never make a mid-tower because they wouldn't make as much profit as they do from selling iMacs."!

That doesn't make much sense. Mintowers of similar specs and prices as the iMac line-up would seem to be MORE profitable, not less. Apple would save on the cost of the display, plus they could use cheaper desktop parts, instead of the more portable (and thus expensive) notebook parts found in the iMac.

Also, not everyone looking for a midrange desktop wants an all-in-one. Apple is definitely losing some sales by not getting a line of minitowers out there. \

.
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post #12 of 25
Quote:
Originally Posted by TBaggins View Post

That doesn't make much sense. Mintowers of similar specs and prices as the iMac line-up would seem to be MORE profitable, not less. Apple would save on the cost of the display, plus they could use cheaper desktop parts, instead of the more portable (and thus expensive) notebook parts found in the iMac.

Also, not everyone looking for a midrange desktop wants an all-in-one. Apple is definitely losing some sales by not getting a line of minitowers out there. \

.

But what would be it's selling point? Gray boxes can be bought dirt cheap anywhere why would anyone buy apple priced one? Apple aren't so interested in amounts of sales, but instead of profits. Apple can get away with high profits, because they choose their playing fields carefully. And Dell has already proven that in this "minitower" market segment there aren't profits to make anymore, even with Dells volumes they can't get parts cheap enough to raise their profitability anywhere near Apple.
post #13 of 25
Quote:
Originally Posted by Project2501 View Post

But what would be it's selling point? Gray boxes can be bought dirt cheap anywhere why would anyone buy apple priced one?

Why would anyone buy an Apple-priced all-in-one (iMac) when they could've gotten those 'kewl' PC all-in-ones that Gateway used to offer?

Yet, the Gateway all-in-one failed, and people bought iMacs. Because it's a Mac, that's why.

Quote:
And Dell has already proven that in this "minitower" market segment there aren't profits to make anymore, even with Dells volumes they can't get parts cheap enough to raise their profitability anywhere near Apple.

Dell is proof of nothing. For example, we could judge by the failure of the Dell DJ that there is "obviously NO market for portable mp3 players."

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post #14 of 25
Quote:
Originally Posted by TBaggins View Post

Why would anyone buy an Apple-priced all-in-one (iMac) when they could've gotten those 'kewl' PC all-in-ones that Gateway used to offer?

Yet, the Gateway all-in-one failed, and people bought iMacs. Because it's a Mac, that's why.


Dell is proof of nothing. For example, we could judge by the failure of the Dell DJ that there is "obviously NO market for portable mp3 players."

.

Dell shows that Apple's plan works. Dell has a higher market share by a long way, yet Apple apparently is worth more than Dell. In a business world, who do you think has, therefore, worked out the computer market correctly?
post #15 of 25
Quote:
Originally Posted by SpamSandwich View Post

Correction... "iComputers".

What is that even supposed to mean?
post #16 of 25
Quote:
Originally Posted by Denton View Post

How is it that people can't understand that Apple doesn't really care about market-share? At least, not in the way that everyone talks about it. What Apple cares about is their share of the high-end market. Get it through your thick skulls! and repeat after me: "Apple will never make a mid-tower because they wouldn't make as much profit as they do from selling iMacs."

This is also the reason that the Mac Mini is being neglected and will be dis-continued soon enough. Apple doesn't want to compete with Dell, who sells mostly shit-computers for almost no profit. Apple cares only about high-profit areas -- this will not change anytime soon, so give the mid-tower a rest!

You make it sound as though Apple has no business plans at all for the so called "mid-range market". Well I believe that Apple as proven time after time that it is very serious about the mid-range market. Look at the Macbook. Not particularly high-end, now is it? Even the Macbook Pro's misses a lot of high-end gear. Just because things cost a lot of money doesn't mean that it's only for the high-end market. In matter of fact depending on from what perspective you look at high-end. Apple is definetely not a real high-end machine. Sure it is fast etc. But high end? High-end for the average market maybe.

But you seem to think to know exactly how and what Apple is thinking. So let me add to this as to what I think Apple is thinking. Apple just wants to make as much money as possible. I don't blame them for it. That's why it's called a market. Sure Apple is thinking about how to make the BEST stuff but only to make the BEST bucks. Whether that's through gaining market share or gross profits from their hardware. Who cares, as long there is a market there is money and as long Apple can make money they will go after it. But remember when Steve came back he said that they would atleast try to retain and regain the market there where they were the most prominent. Which was at that time the "high-end" market. But Apple has and still is gaining and retaining that market. Nonetheless, Apple has also set foot on shore on the "mid-range" market. With gadgets such as the iPod (shuffle, nano and video). The macmini might be neglected as a machine but the idea behind it is not. They might bring in a different model again for the "mid-range" market. But they will go for it. As long there is money Apple will try to earn it. They might not do it as strong and confident as they do for the "high-end" market but that's because of different issues. Steve's perfect world would atleast contain this point: That everybody on this planet would use a mac, iPod, iPhone in their daily lives. Why? Because he really believe that his products are the best in their current market. As Steve said that iTunes for Windows users is like a cup of ice cold water for somebody in Hell. Steve truly believes that.

APPLE WANTS MONEY and I think they are my best candidate that are going to get it from me.
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post #17 of 25
Quote:
Get it through your thick skulls! and repeat after me: "Apple will never make a mid-tower because they wouldn't make as much profit as they do from selling iMacs."

You my friend are a real arsehole! There is no need whatsoever to insult people on this board purely because they have an opinion that differs to your own, the whole point of this board is to debate each others own opinion. I would suggest you apologise now.

I would also suggest you go back to business 101 and understand a very simple lesson in profit making, You make more profit selling lower margin goods at higher quantity. Its just a matter of maths and maret share.

Say for intance you sell 10,000 units at $2500 each with a a gross margin of 30% (about right for apple) that means you make a total of $7,500,00 Margin.

Now of course these $2500 units are sold in a high end market, they are for proconsumers, if you wanted a bite of the hot low end mid-tower market you would need to make a box and sell it for $1,250. But as this is the sweet spot for the mass market of consumer/home PC's you sell 50,000 of these units at $1,250, again making 30% margin. These sales would net you a total of $18,750,000 gross margin.

Okay so the bad news is that Apple report a profit figure of 17%, putting a lot of energy into selling much more quantity for a lower price will increase the companies overheads probably slightly hampering the percentage of operating profit, but only slighty and 17% profit on $25,000,000 sales is nowhere near as good as 16% on $62,500,000 sales.


There is no reason whatsoever that would force Apple to accept a lower gross profit percentage on a product just because it is priced cheaper. There does seem to be a theory that Apple may have done this for the AppleTV, but this is different entirely, this is trying to sell a computer into a market that is dominiated by low end asian built low cost set-top boxes, a $900 computer would not sell in that market. But we are talking about a $1,250 mid tower here, the market is already there.
post #18 of 25
Quote:
But what would be it's selling point? Gray boxes can be bought dirt cheap anywhere why would anyone buy apple priced one? Apple aren't so interested in amounts of sales, but instead of profits. Apple can get away with high profits, because they choose their playing fields carefully. And Dell has already proven that in this "mini-tower" market segment there aren't profits to make anymore, even with Dells volumes they can't get parts cheap enough to raise their profitability anywhere near Apple.

I think you misunderstand the reasons Apple can make such large margins on their products, it has nothing to do with choosing their playing fields carefully at all. Apple can retain so much profit because they have built their brand in such a way that people accept paying a premium for their products because they are perceived as giving a much better experience and of being built to a higher quality as the competition. The truth is not important the brand is all that matters. Apple have fantastic USP's, the biggest by far being OSX and the way that Apple have tight control on which platforms it is deployed on giving them the tagline "It just works", this is what people buy when they buy Apple. As long as Apple are careful not to release products that will harm the brand they can continue to sell products for more money than the competition in any marketplace they want to.

Remember some of the lowest class poorest people in the developed world have ipods!!

A good comparison is BMW, they have a fantastic brand that allows them to sell cars at 25% over the competition for a similar specced car, But BMW do not just sell expensive luxury sedans to businessmen, they also have a range of small hatchbacks that sell to young drivers, first time buyers and housewives. Do you think this hurts their profitbility? Do you think they have dropped their pants to compete with cheap japenese hatchbacks? No, as long as the build quality remains what you would expect from a BMW then they know that people will pay the premium and they would sell enough to make a great profit.
post #19 of 25
Quote:
Originally Posted by Denton View Post

How is it that people can't understand that Apple doesn't really care about market-share? At least, not in the way that everyone talks about it. What Apple cares about is their share of the high-end market. Get it through your thick skulls! and repeat after me: "Apple will never make a mid-tower because they wouldn't make as much profit as they do from selling iMacs."

This is also the reason that the Mac Mini is being neglected and will be dis-continued soon enough. Apple doesn't want to compete with Dell, who sells mostly shit-computers for almost no profit. Apple cares only about high-profit areas -- this will not change anytime soon, so give the mid-tower a rest!

I agree Apple=Lexus market level wise, but I do wish they would sup up the mini. It wpuld be a good replacement for my cube.
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post #20 of 25
Quote:
Originally Posted by Project2501 View Post

But what would be it's selling point? Gray boxes can be bought dirt cheap anywhere why would anyone buy apple priced one?

What is the selling point of any Mac? Maybe it is mostly to use the Apple OS? Apple makes nice computers, but without the OS, it's not much more than another competitor in the vein of the VAIO line.

Anyway, I wondered if anyone knew what's up with the stock indicator on the front page of this site. Why is the change listed in four decimal places?
post #21 of 25
Quote:
Originally Posted by murphyweb View Post

You make more profit selling lower margin goods at higher quantity. Its just a matter of maths and maret share.

Say for intance you sell 10,000 units at $2500 each with a a gross margin of 30% (about right for apple) that means you make a total of $7,500,00 Margin. […] if you wanted a bite of the hot low end mid-tower market you would need to make a box and sell it for $1,250.

This is just a toy example, but fun nonetheless. On a lower priced model the gross margin would be closer to 20 percent, to chase market share and make as much profit as Company A, Company B would need to sell three-times as much, and this is not likely to happen with a $1,250 tower, because the market is not infinite, and most desktop PCs are already priced below $800, anyway. With 2x the sales volume, Company B's gross profit is actually lower despite the huge sales differential. This is even harder to make more profit than A with a $800 computer and a 15 percent margin, Company C would need over 6x the sales volume.

Code:


Company A ($2,500 desktop)
units price revenue margin(%) margin($)
10,000 $2,500 25,000,000 30% $7,500,000

Company B ($1,250 desktop)
units price revenue margin(%) margin($)
20,000 $1,250 25,000,000 20% $5,000,000
30,000 $1,250 37,500,000 20% $7,500,000

Company C ($800 desktop)
units price revenue margin(%) margin($)
63,000 $800 50,400,000 15% $7,560,000
post #22 of 25
Why would the gross margin be lower on a lower priced product? That makes no sense whatsoever. If you decide as a company that every product you sell would have the same level of margin applied accross the range then this would not be the case.

Of course you would have to build your product cheaper and use cheaper parts but this is to be expected when buying a cheaper model, but you would always make 30% margin if that is what you want. Of course to make the same amount of gross profit as a product costing twice as much you need to sell twice as much.

What you may find is that the actuall profit margin as a whole suffers due to the extra investment in marketing and sales needed to sell lower priced productcs but while the overall profit margin would decrease slighty the dollars amount would be greater.
post #23 of 25
Quote:
Originally Posted by murphyweb View Post

Why would the gross margin be lower on a lower priced product?

This is the way it is, Dell gets more profits on an Alienware or on the XPS line than on a puny Inspiron, that's why they purchased Alienware in the first place.

If you decide to chase market share by releasing low-end products, you really need to increase unit sales. The competition will get more intense, it will lead to increased pressure on margins. The PC industry is pushed toward commoditization, this is mostly a high-volume, low-profit margin industry. On the other hand Apple is not competing on price alone, their brand is seductive and valuable, differentiated from the Dells of the world, and Apple can maintain a healthy profit.
post #24 of 25
Dell isn't the greatest example to compare against Apple - Dell targets mainly businesses would don't care about how pretty the box is, as long as it's cheap and/or offers decent tech support for big volume purchases (Dell Premier), or to the consumer that just wants a cheap box to go online with. I can't even build a PC for $300-400 with a monitor, but Dell can.

I don't think Apple cares too much about market share, as long as they can sell iPods and iPhones, and a decent number of Macs. If the Mac market share increases, it's probably just gravy, as they have a high profit on each computer sold. Without the OS, they wouldn't be that much different than a VAIO.

I'm not sold on Apple quality though - you are paying a premium, but I think their warranty support sucks (I've only had an iPod, but wound up getting the APP because it died on me just after the 1 year mark, and I needed a replacement), and I've read about people having problems with discoloration and overheating with the Macbooks. I'm still planning on getting a Macbook, but the thing better be near flawless for the most part.

When you buy something like a BMW, you get outstanding service and support, and the quality of the product is better, and so the higher profit margin is also displayed in other areas, besides just paying extra for the name.
post #25 of 25
And one more thing. Analysts were originally a bit worried about the Mac mini and the entry-level iPods because the gross margin for these products was expected to be below the company average of about 28 percent at the time. Apple confirmed the fact in the Jan. 2005 conference call. Oppenheimer stated that margins on the eMac (another entry-level product, targeting the edu market) were below average, too. Gross margins tend to be lower on a lower priced product.

Quote:
Originally Posted by Notes of interest from Apple's Q1 2005 conference call

Apple's gross margins on the new iPod shuffle and Mac mini are below Apple's average and equivalent to the eMac. iPod margins were close to 20% for quarter, while iPod shuffle margins will be below 20%.
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