In a report to clients Tuesday, Kaufman Bros. analyst Shaw Wu said his latest round of supply chain and distribution checks reveal weaker sell-through of the company's clip-on iPod shuffle but strong sales of iPod nanos and iPod touches.
"While we continue to see strong demand for iPod touch and iPod nano with spot shortages across several key retailers, what is new is that we are seeing weaker-than-expected iPod shuffle sell-through," he wrote. "We are hearing the reason for this is that customers are opting to purchase higher-end, more functional iPods instead, simply because the value of an iPod is well known and understood."
Going forward, Wu said Apple may need to drop the price of the entry-level music players below their respective $49 and $69 price points to "regenerate excitement" in the marketplace.
Given these findings, the analyst lowered his December quarter iPod forecast to 19 million units from 21 million units, but raised his average selling price estimate by $7 to $159 to account for stronger sales of the pricier iPod nano and iPod touch models.
Meanwhile, Wu said his sources indicate that demand for the iPhone 3G in the U.S. remains fairly strong, while Europe is seeing surprisingly slower growth that may persists for the foreseeable future. He also remains concerned that iPhone Gift Card sales could understate iPhone results for the current December quarter, with many gift-getters unlikely to cash in their cards for actual iPhones before the new year.
As such, Wu is "opting to be conservative" by reducing his December quarter iPhone unit forecast to 5.5 million units from 6 million units, but raising his March quarter estimate to 4.7 million units from 4.5 million units to account for his expectation of late gift card redemptions.
For the December quarter, his fiscal estimates remain relatively unchanged at $10 billion in revenue and $1.47 in per-share earnings (EPS), slightly above consensus estimates at $10 billion and $1.42.
"For fiscal 2009, we are now at $35.2 billion in revenue and $5.05 in EPS down from $35.5 billion and $5.05, respectively and for fiscal 2010, we estimate $42.4 billion in revenue and $6.45 in EPS, down from $42.8 billion and $6.45, respectively," he wrote. "We remain materially below consensus (particularly for revenue) for fiscal 2009 and 2010 even though our peers have reduced estimates in recent weeks."
Over at Needham & Co., analyst Charles Wolf made similar adjustments to his fiscal 2009 estimates after digesting NPD data from Monday that suggests Mac sales in the December quarter are modestly softer than he had previously estimated.
The market research firm said Mac notebook sales rose approximately 22 percent year-over-year during November while desktops fell 38 percent, resulting in Mac sales being relatively flat for the month.
"The November sales number must be placed in perspective. It represents less than 5% of Apple’s December quarter sales," Wolf advised clients. "Nonetheless, it signals that the current recession is probably more severe and pervasive than it appeared to be in October and thamost likely extend at least through the first half of calendar 2009."
Wolf consequently reduced his 2009 revenue forecast from $38.2 billion to $36.6 billion and his 2009 EPS estimate from $5.65 to $5.20.
"The adjustments to our model are relatively modest because a growing stream of iPhone revenues in 2009 should offset some of the weakness in Mac and iPod sales," he explained. "iPhone revenues are amortized over eight quarters and should continue to grow throughout 2009, reflecting the acceleration of iPhone sales following the launch of the 3G model in July."
Both Wu and Wolf recommend that investors build positions in Apple, with Wu listing the company as a "Buy" alongside a $120 price target and Wolf advocating shares as a "Strong Buy" with a $240 price target.