Wall Street pleased by high-profit pricing of Apple's new Retina iPad mini, iPad Air

Posted:
in AAPL Investors edited January 2014
Apple's pricing strategy with the iPad Air and new iPad mini with Retina display should help the company's gross margins, analysts believe, while free software offered with new iOS and Mac device purchases should help drive upgrades and further tie users into the company's ecosystem.

iPad


After Apple announced its new iPad lineup and other products on Tuesday, Wall Street analysts offered their take on the company's fall 2013 product lineup. Included here is a roundup of their opinions.

Cowen and Company

Analyst Timothy Acuri said the higher $399 starting price for the new iPad mini with Retina display should help drive Apple's margins higher.

He believes the fact that the device is $70 more expensive than last year's model, and that it will launch later in November, are signs that Apple does in fact face yield issues with the 7.9-inch Retina display -- something that was rumored before the product was announced on Tuesday.

Acuri also appreciated Apple's free software offerings for its users, including OS X Mavericks to all, and iLife and iWork suites to recent iOS and Mac device buyers. He believes the higher residual value offered by Apple should help fuel upgrades to new devices.

iPad

Deutsche Bank

With the new Retina iPad mini starting at $399, Apple chose margins over volume, analyst Chris Whitmore believes. But he's OK with that, has he believes Apple may have priced the original iPad mini too aggressively at $329, negatively affecting the company's margins.Analysts believe the $399 Retina iPad mini will be a healthy shot in the arm for Apple's margins, helping keep them in the high 30% range.

Whitmore also has high hopes for the iPad Air, which starts at $499. He expects the significant improvements to portability and new performance enhancements will be appealing to customers.

And software has increasingly become a point of differentiation for Apple from its competitors, he said. In addition to supporting the company's free software strategy, he also noted that the interoperability and consistency of feel between OS X and iOS is a boon for customers in the Apple ecosystem.

Piper Jaffray

Between the pricing of the iPhone 5c and now the Retina iPad mini, analyst Gene Munster believes Apple's current strategy is to hold its ground on pricing mobile devices. He expects Apple will see overall gross margins of 36.7 percent in calendar year 2014.

With the iPhone and iPad representing 75 percent of Apple's sales, he expects near-term gross margin to be stable in the 36 to 38 percent range. He also expects that the new iPads will reaccelerate growth during the current holiday quarter.

iPad Air
Apple's new iPad Air. | Photo: Daniel Eran Dilger

Wells Fargo Securities

Analyst Maynard Um believes collaboration capabilities between iPad, iPhone and Mac could help drive the so-called "halo effect" for Apple devices, encouraging customers to buy into the ecosystem.

He said in his note to investors that pricing on the new MacBook Pro models with Retina displays is attractive, at $200 below their predecessors. And Um also expects the new Mac Pro desktop to become the industry standard for multimedia editing.

RBC Capital Markets

For analyst Amit Daryanani, the biggest surprise from Apple this week was pricing of its new devices. The new Retina MacBook Pro models saw a $200 price cut, while OS X Mavericks and the iWork and iLife suites are now offered for free.Wall Street watchers expect Apple's new free software, including Mavericks, iWork and iLife, will tie users into Apple's ecosystem.

As for the new iPads, Daryanani expects the iPad mini with Retina display to drive a "significant upgrade cycle" for Apple. He also noted that the new iPads will be available in multiple countries at launch, including China for the first time, which should help initial uptake.

Needham & Co.

Charlie Wolf believes Apple's new pricing was a "major surprise" announcement from the company. He sees the move stimulating demand for new iPads as well as Macs.

"But it has the potential to cause a world of hurt to competitors who still rely on software revenues to drive their earnings," he said.

iPad
Apple's new iPad Air. | Photo: Daniel Eran Dilger

J.P. Morgan

Consensus estimates for Apple's earnings are likely to trend upward in the near- to mid-term, thanks to the introduction of new iPhones and iPads that will likely be hot sellers, analyst Mark Moskowitz believes.

He also indicated that Apple has "good timing" with the new iPads, as Moskowitz lowered tablet market revenue and unit estimates for the first time ever on Sept. 3. At the time, J.P. Morgan's research suggested that the "adoption wave" in the overall tablet market could be softening.

"We think Apple's incremental features and price points could be enough to drive an Apple-related upgrade cycle in tablets," he said.

Cantor Fitzgerald

Apple's new tablet lineup is "the most significant iPad refresh since the original iPad," analyst Brian White declared. He sees the iPad Air and Retina iPad mini driving a "major upgrade cycle" for the company.

White expects that the later launch for the Retina iPad mini is likely a result of apparent yield issues with the device's high-resolution screen.

Morgan Stanley

Katy Huberty came away impressed with the broader price points offered by Apple's new iPad lineup, though she noted that the iPhone drives over 50 percent of the company's revenue and 65 percent of gross profit dollars.

She sees several potential catalysts for the company between now and the end of 2014, including the potential for cheaper iPhones that could drive market share, a new iPhone model with a larger display, and new services that could tie in to the Touch ID fingerprint sensor currently exclusive to the iPhone 5s.

iPad mini

ISI Group

Like many other members of the investment community, Brian Marshall was at Apple's iPad event, and after spending some hands-on time with the new iPads, he believes they will drive a "significant upgrade cycle" among Apple's established 170 million customer base.

He highlighted the "velocity" at which Apple is planning to launch the new iPad Air, including shipping in China on Nov. 1, calling it "impressive."
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Comments

  • Reply 1 of 47
    dugbugdugbug Posts: 283member
    sooo... not doomed?
  • Reply 2 of 47

    Who cares what Wall Street is pleased by?

  • Reply 3 of 47
    How about market share ?? Don't they fear higher price will affect apple getting market share ?
  • Reply 4 of 47
    rob53rob53 Posts: 1,986member
    I always find it ironic Wall Street only cares about margins and nothing about products AND that crazy investors actually listen to these maniacs. Apple's success will come from people buying their products not from what Wall Street has to say. Maybe one of these days we can get rid of these money changers sweeping them out of the "temple" (again).
  • Reply 5 of 47
    These analysts are simply hooey. Whatever they say, simply ignore. Certainly don't go to their website since all they seek is eyeballs.
  • Reply 6 of 47
    irelandireland Posts: 17,547member

    **** wall st. bunch of crooks.

  • Reply 7 of 47

    Apple never cares to please those gang of evils - WallStreet. Why should someone please them at all? Nonsense.

  • Reply 8 of 47
    99% here saying hello
  • Reply 9 of 47
    jungmarkjungmark Posts: 6,643member
    What about market share, Wall Street? Make your damn mind up.
  • Reply 10 of 47
    512ke512ke Posts: 781member
    This Is obviously just an opinion. But.

    Many of these analysts have been slamming Apple.

    They are afraid of looking like fools when Apple announces record sales and profit shortly.

    Hence the praise.
  • Reply 11 of 47

    Yes, well, so long as the plantation owners are pleased. 

  • Reply 12 of 47
    formosaformosa Posts: 261member

    The article below cites 10 analysts with their Apple stock price projections based on the new products. Their projections range from $525 to $777. The stock right now is at $520. That is an INCREDIBLE range for these people all in the same field (i.e., no consistency in this field). It's almost like forecasting the weather...

     

    http://tech.fortune.cnn.com/2013/10/23/apple-ipad-mavericks-analysts/?source=yahoo_quote

  • Reply 13 of 47

    OHH!! Apple Iphone6 to feature wireless charging check this image http://imgdino.com/viewer.php?file=55435655014539763564.jpg

  • Reply 14 of 47
    rogifanrogifan Posts: 10,669member
    I see the media meme this morning is "the software might be free but boy will you pay a pretty penny for the hardware!" OK can some one show me where Apple raised the price of their hardware to cover making the software free? Or where Apple didn't reduce prices or didn't reduce them as much as expected to cover this free software? They didn't raise prices on iPhones. Heck my iPhone 5 running iOS 7 got the iWork and iLife apps for free. CNBC and others are trying to imply something that doesn't exist. Apple has always made money off hardware sales and all they're doing now is making it more attractive to own Apple hardware. Basically Apple is negating Microsoft's supposed advantage with Office. For the casual user Apple's productivity apps are good enough and being free makes them even better.

    I rewatched the keynote and one thing I noticed is Apple doubled down on their anti convergence stance. They focused on how incredibly light and mobile the iPad Air is. All the shots were of people out and about using it; showing it off as something you can take with you wherever you go. Compare that to the Surface which is 99% of the time shown with the kickstand out and keyboard attached. Plus it looks incredibly bulky compared to the Air, and weighs more too. I look at the iPad Air and see it as Apple realizing their vision of getting the hardware out of the way and allowing it to be all about software and content. It's all about refining the hardware to a point where it almost disappears. That's the complete opposite of Microsoft's strategy.
  • Reply 15 of 47
    wizard69wizard69 Posts: 12,690member
    Assumptions assumptions, they seem to think the higher price is only there to drive margins, has anyone on wall street stopped to think about the possibility that some components cost more? A retina screen could be $50 more and the A7 could easily be $10 more, throw in a few bucks for the M7 and you cover much of the Minis cost increase. On top of that there is a cost associated with free software no matter how trivial.

    In the end we can't really say that margins will be higher. At least not on the base model. We do know that the uprated models with more flash ought to be doing much better as there has been a real decrease in hardware costs for flash.
  • Reply 16 of 47

    To me it seems like Apple would better benefit from a lower price and increasing their overall sale numbers. They could then just make for up lower cost in their 30% cut of every app sold and every in-app purchase.

  • Reply 17 of 47
    rob53rob53 Posts: 1,986member
    To me it seems like Apple would better benefit from a lower price and increasing their overall sale numbers. They could then just make for up lower cost in their 30% cut of every app sold and every in-app purchase.

    Josh, Apple is a hardware company. Software drives hardware sales and is effectively a loss leader. The people who appreciate Apple products will pay to get them. The people who can't afford them but what they can and aren't going to be buying extra software. They'll pick up free software which Apple makes no money on. Wall Street can't get a grasp on this because they don't and never will understand Apple.
  • Reply 18 of 47
    jungmarkjungmark Posts: 6,643member
    wizard69 wrote: »
    Assumptions assumptions, they seem to think the higher price is only there to drive margins, has anyone on wall street stopped to think...

    Haha. The answer is no.
  • Reply 19 of 47
    Wow, this is the first time is a while that AAPL hasn't lost 10% in the days after a major announcement (of course it always recovers, like after the recent iPhone announcement). It tried yesterday (was briefly down a couple buck during the keynote), but the hits just kept coming yesterday.

    My only disappointments were lack of TouchID, which I suspect is a supply issue, and mostly the lack of a new cinema display (which would be low volume, but still). Seriously, who's going to spend $5K on a (reasonably spec'ed) Mac Pro, and hook it up to a 4 year old monitor design.

    Given all the great updates yesterday, though, I was surprised at both how bored Tim/Phil/Craig were (they didn't seem enthused or even prepared), and the audience too. What does it take to get some applause from that crowd!

    There seems to be no real appreciation for the iWorks updates (both native and iCloud version), but those are amazing! The new iWorks (on Mac, iOS and iCloud) makes google docs look like WordStar. But I digress.
  • Reply 20 of 47
    rogifanrogifan Posts: 10,669member
    To me it seems like Apple would better benefit from a lower price and increasing their overall sale numbers. They could then just make for up lower cost in their 30% cut of every app sold and every in-app purchase.
    Sorry I don't think Apple's iTunes business makes them a lot of money. Maybe the Mac AppStore does but my guess is iOS and iTunes music is pretty much break even. At least it used to be.
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