Apple seen resisting recession, adding new iPhone models
While Wall Street analysts are generally reacting favorably to Apple's strong first quarter results, a select few broke from the pack with one very positive reaction and one rather negative, along with two predictions that the iPhone line will see some new additions in 2009.
General Reaction
Needham's Charlie Wolf rated Apple a Strong Buy and titled his report, "The recession bites Apple, but it's only a nick."
"Navigating through a treacherous economy," Wolf wrote, "Apple easily beat its first quarter guidance and consensus estimates."
Wolf, though, believes Mac shipments will be "flat" during fiscal year 2009.* Coupled with a lower assumed gross margin on the iPhone, he lowered his price target from $240 to $200.
Kaufman Brothers' Shaw Wu called the results "impressive execution in a recessionary environment", noting how the Mac maker posted stronger quarterly figures than expected.* "Apple was able to beat estimates despite a very tough macroeconomic environment," he wrote.* "[It was] one of a few companies able to do so."
Wu is keeping Apple rated as a "Buy", joining Gene Munster of Piper Jaffray.* Munster, however, lowered his price target from $235 to $180 due to "reduced estimates".* For his part, Wu kept his target static at $120.
Munster is also revising his long-held prediction that Apple will introduce a new iPhone model.* He originally expected the launch by the end of March.* "We continue to believe there will be a family of iPhones by the end of [2009], but we now expect an additional model to launch this summer," he wrote.* As a result, he pushed the growth curve for the iPhone out "by several months". *Another analyst agreed, as explained later in this article.
Ben Reitzes at Barclays Capital was also encouraged with Apple's results, holding both his Overweight rating and $133 price target still. *
"The only real negatives," Reitzes wrote, "were the company's Retail segment and iPhone channel inventory levels.* Apple's own retail stores fell significantly shy of expectations as sales shifted to non-Apple retailers who discounted...Perhaps Apple is keeping [iPhone] inventory relatively high to satisfy new geographies and partners like Wal-Mart."
Reitzes added that significant cash flow remains very positive for the company.
"We believe the 1Q09 report was very strong and should provide relief for shareholders after the lumpy market data points and concerns over Steve Jobs' health, given the company not only beat fiscal 1Q (bottom AND top line) but also guided above very low Street estimates."
UBS Investment Research's Maynard Um, under the heading "What recession?", revealed that he is keeping his Neutral rating and $110 price target unchanged.* Um warned, however, that Apple could come under pressure on the iPhone in the face of new competitors coming to market since "operators are likely to use competitive products as leverage to negotiate more favorable pricing."
Citigroup very optimistic
Richard Gardner of Citigroup is convinced Apple "will materially exceed its fiscal year 2009 gross margin guidance of 30-31%", given "favorable input pricing" and "a growing contribution from higher margin iPhone revenue and lack of product price cuts".* So convinced, in fact, that he raised his price target from $132 to $147.*
"Despite this morning's rally, valuation continues to look attractive and we reiterate our Buy rating," Gardner wrote.
Dissent from bearish RBC
RBC Capital's Mike Abramsky is not optimistic for the near future, breaking away from the majority of his counterparts.* He has Apple listed with an Underperform rating and "above average risk", with the lowest price target (by $40) of the group at just $70.
"Going forward, Apple's traditional low guidance/high beat may be at risk," wrote Abramsky, "given nominal product catalysts, deteriorating demand, lower margins."
He mentioned slowing iPhone and Mac growth (portables excepted), and wrote, "More scary to us however, was the 25% year over year (22% quarter over quarter) decline in Desktops to 0.7M shipments.* Beyond an ongoing transition from desktops to laptops, deteriorating consumer spending in our view materially contributed to slowing Desktop sales."
Abramsky warned, "With iPhones slowing, iPods saturated, we see a growth 'downshift' for Apple, positioned as premium-priced amidst a worsening global recession - with further demand declines expected ahead".
Reasons for that outlook were "iPhones coming off a 3G product cycle", "forward margins .... expected to decline", and "sluggish US growth, slowing retail store sales, weak education sales", as well as concern as to whether iPod and Mac portables can continue growing.
Waiting for the iPod Phone and iPhone Pro?
Interestingly, Abramsky believes a scaled-back version of the iPhone has "the highest probability of being launched 2009."
"An entry level iPod Phone (voice/SMS, iPod, Wi-Fi but not data plan) could be significant both strategically and financially to Apple," Abramsky wrote.* "Positioned at (estimated) $0-$99, the iPod Phone could leverage broad global retail/carrier distribution, with both prepay and low-cst plans.* It addresses a global opportunity (estimated to be) three to four times as large as iPhone 3G."
Abramsky suggests Apple could sell 21 to 42 million such devices in 2010, ignoring stark comments to the contrary by acting Apple chief executive Tim Cook on Wednesday.
"You know us, we're not going to play in the low-end voice phone business," Cook told analysts on the call, which included Abramsky.*"That's not who we are. That's not why we're here. We'll let somebody do that, our goal is not to be the unit share leader in the phone industry. It is to build the best phone."
Meanwhile, Abramsky also suggested that there's an 80% probability of a beefed-up iPhone 3G in the near future.
"Apple could boost iPhone upgrades and global iPhone momentum with a next gen iPhone 3G (HSPA) 'Pro', sporting a faster processor and graphics engine (gaming, video, multitasking), improved camera (resolution, flash, video), higher memory, battery," he wrote.
What about Steve?
Reports from Citi, Needham, Piper Jaffray, and UBS didn't even mention Steve Jobs or his health challenges, while Barclays merely mentioned it in passing as a fear now relieved thanks to the results. *Kaufman Brothers called his health and succession plans "somewhat of an overhang."
Again breaking completely from his competitors, RBC's Mike Abramsky made clear that he considers a "leadership void" to be a significant factor in his valuation.
"Apple offered few new insights regarding CEO Jobs' unexpected Leave of Absence, sustaining near-term uncertainty re leadership," he wrote. *Without mentioning Cook, Abramsky added, "As discussed in our recent downgrade, Jobs is widely viewed as Apple's chief innovator, dealmaker, leader, deeply involved in minute decisions, inextricably tied to Apple's brand."
"Jobs' being sidelined for 6 months or more and unavailable day-to-day -- with no clear successor -- in our view raises risks to Apple sustaining its stellar record of innovation going forward," he added.
Finally, Abramsky listed "key executives or staff departures" alongside a list of possible impediments to his predicted price target.
General Reaction
Needham's Charlie Wolf rated Apple a Strong Buy and titled his report, "The recession bites Apple, but it's only a nick."
"Navigating through a treacherous economy," Wolf wrote, "Apple easily beat its first quarter guidance and consensus estimates."
Wolf, though, believes Mac shipments will be "flat" during fiscal year 2009.* Coupled with a lower assumed gross margin on the iPhone, he lowered his price target from $240 to $200.
Kaufman Brothers' Shaw Wu called the results "impressive execution in a recessionary environment", noting how the Mac maker posted stronger quarterly figures than expected.* "Apple was able to beat estimates despite a very tough macroeconomic environment," he wrote.* "[It was] one of a few companies able to do so."
Wu is keeping Apple rated as a "Buy", joining Gene Munster of Piper Jaffray.* Munster, however, lowered his price target from $235 to $180 due to "reduced estimates".* For his part, Wu kept his target static at $120.
Munster is also revising his long-held prediction that Apple will introduce a new iPhone model.* He originally expected the launch by the end of March.* "We continue to believe there will be a family of iPhones by the end of [2009], but we now expect an additional model to launch this summer," he wrote.* As a result, he pushed the growth curve for the iPhone out "by several months". *Another analyst agreed, as explained later in this article.
Ben Reitzes at Barclays Capital was also encouraged with Apple's results, holding both his Overweight rating and $133 price target still. *
"The only real negatives," Reitzes wrote, "were the company's Retail segment and iPhone channel inventory levels.* Apple's own retail stores fell significantly shy of expectations as sales shifted to non-Apple retailers who discounted...Perhaps Apple is keeping [iPhone] inventory relatively high to satisfy new geographies and partners like Wal-Mart."
Reitzes added that significant cash flow remains very positive for the company.
"We believe the 1Q09 report was very strong and should provide relief for shareholders after the lumpy market data points and concerns over Steve Jobs' health, given the company not only beat fiscal 1Q (bottom AND top line) but also guided above very low Street estimates."
UBS Investment Research's Maynard Um, under the heading "What recession?", revealed that he is keeping his Neutral rating and $110 price target unchanged.* Um warned, however, that Apple could come under pressure on the iPhone in the face of new competitors coming to market since "operators are likely to use competitive products as leverage to negotiate more favorable pricing."
Citigroup very optimistic
Richard Gardner of Citigroup is convinced Apple "will materially exceed its fiscal year 2009 gross margin guidance of 30-31%", given "favorable input pricing" and "a growing contribution from higher margin iPhone revenue and lack of product price cuts".* So convinced, in fact, that he raised his price target from $132 to $147.*
"Despite this morning's rally, valuation continues to look attractive and we reiterate our Buy rating," Gardner wrote.
Dissent from bearish RBC
RBC Capital's Mike Abramsky is not optimistic for the near future, breaking away from the majority of his counterparts.* He has Apple listed with an Underperform rating and "above average risk", with the lowest price target (by $40) of the group at just $70.
"Going forward, Apple's traditional low guidance/high beat may be at risk," wrote Abramsky, "given nominal product catalysts, deteriorating demand, lower margins."
He mentioned slowing iPhone and Mac growth (portables excepted), and wrote, "More scary to us however, was the 25% year over year (22% quarter over quarter) decline in Desktops to 0.7M shipments.* Beyond an ongoing transition from desktops to laptops, deteriorating consumer spending in our view materially contributed to slowing Desktop sales."
Abramsky warned, "With iPhones slowing, iPods saturated, we see a growth 'downshift' for Apple, positioned as premium-priced amidst a worsening global recession - with further demand declines expected ahead".
Reasons for that outlook were "iPhones coming off a 3G product cycle", "forward margins .... expected to decline", and "sluggish US growth, slowing retail store sales, weak education sales", as well as concern as to whether iPod and Mac portables can continue growing.
Waiting for the iPod Phone and iPhone Pro?
Interestingly, Abramsky believes a scaled-back version of the iPhone has "the highest probability of being launched 2009."
"An entry level iPod Phone (voice/SMS, iPod, Wi-Fi but not data plan) could be significant both strategically and financially to Apple," Abramsky wrote.* "Positioned at (estimated) $0-$99, the iPod Phone could leverage broad global retail/carrier distribution, with both prepay and low-cst plans.* It addresses a global opportunity (estimated to be) three to four times as large as iPhone 3G."
Abramsky suggests Apple could sell 21 to 42 million such devices in 2010, ignoring stark comments to the contrary by acting Apple chief executive Tim Cook on Wednesday.
"You know us, we're not going to play in the low-end voice phone business," Cook told analysts on the call, which included Abramsky.*"That's not who we are. That's not why we're here. We'll let somebody do that, our goal is not to be the unit share leader in the phone industry. It is to build the best phone."
Meanwhile, Abramsky also suggested that there's an 80% probability of a beefed-up iPhone 3G in the near future.
"Apple could boost iPhone upgrades and global iPhone momentum with a next gen iPhone 3G (HSPA) 'Pro', sporting a faster processor and graphics engine (gaming, video, multitasking), improved camera (resolution, flash, video), higher memory, battery," he wrote.
What about Steve?
Reports from Citi, Needham, Piper Jaffray, and UBS didn't even mention Steve Jobs or his health challenges, while Barclays merely mentioned it in passing as a fear now relieved thanks to the results. *Kaufman Brothers called his health and succession plans "somewhat of an overhang."
Again breaking completely from his competitors, RBC's Mike Abramsky made clear that he considers a "leadership void" to be a significant factor in his valuation.
"Apple offered few new insights regarding CEO Jobs' unexpected Leave of Absence, sustaining near-term uncertainty re leadership," he wrote. *Without mentioning Cook, Abramsky added, "As discussed in our recent downgrade, Jobs is widely viewed as Apple's chief innovator, dealmaker, leader, deeply involved in minute decisions, inextricably tied to Apple's brand."
"Jobs' being sidelined for 6 months or more and unavailable day-to-day -- with no clear successor -- in our view raises risks to Apple sustaining its stellar record of innovation going forward," he added.
Finally, Abramsky listed "key executives or staff departures" alongside a list of possible impediments to his predicted price target.
Comments
The guy is waaaay off the charts. Wow.
Abramsky sounds like someone who got diss-ed by Apple for some reason.
The guy is waaaay off the charts. Wow.
True. Almost seems like he's trying hard to get AAPL down.
I'm also surprised to see Munster lower his price target by so much.
Mea culpa takes the immediate hit, and who knows, maybe you were right. Double down, and you have another quarter of oxygen, and maybe gravity will still be your friend.
For my money, Munster has been the most qualitatively AND quantitatively reasoned of the analysts, but let's face it, when you are dealing with a highly secretive company with multiple product lines, an integrated platform play, a nascent marketplace, sales channels you own, indirect channels, subsidized business units, unsubsidized business units, etc. AND a horrific economy in a global market, this is hard stuff.
That said, it does not change the fact that most analysts don't have a clue and default to the simple story line over the nuance, which hurts a company like Apple.
For what it's worth, this was my read on Apple's earnings call:
How do you like them Apples? Apple's Earnings Rock!
http://thenetworkgarden.com/weblog/2...em-apples.html
Check it out if interested.
Mark
Abramsky sounds like someone who got diss-ed by Apple for some reason.
The guy is waaaay off the charts. Wow.
I agree, I think that with a desktop refresh Apple will get a boost in desktop sales anyway. iPod looks pretty stable now, iPhone is growing, Laptops are growing.
Assuming Apple get even minor growth this year in iPhone sales, by the end of this year there will be 30 million iPhones that Apple will be accounting revenue for each quarter. Revenue that really adds to profit (compare the non-GAAP adjusted figures against the GAAP-adjusted figures). If Apple get to the stage of adding between $2b and $4b every quarter to their cash hoard in a recession, then the Apple that emerges in two years time with $50b in cash and 15% of the market ..., well you see where I am going.
Possible explanations: 1) he has his head so far up his spreadsheet that he is missing the forest for the trees, 2) he is an Apple hater allowing his bias to color his analysis, 3) he just doesn't get it.
Does this guy actually get paid for this kind of analysis? His advice to Apple to improve iPhone sales is to do what the competition is doing with their phones? The same competition they are slaying by doing things differently? A battery (removeable)? Yeah, that non-removable battery thing really sunk the iPod, didn't it. Jeez.
Possible explanations: 1) he has his head so far up his spreadsheet that he is missing the forest for the trees, 2) he is an Apple hater allowing his bias to color his analysis, 3) he just doesn't get it.
Reason 4 .... he's worried that with Apple's 28 billion in the bank, they might buy the last of Canadas hockey teams and bring them to the US. He's doing what he can to diminish the available cash on hand.
"An entry level iPod Phone (voice/SMS, iPod, Wi-Fi but not data plan) could be significant both strategically and financially to Apple," Abramsky wrote.* "Positioned at (estimated) $0-$99, the iPod Phone could leverage broad global retail/carrier distribution, with both prepay and low-cst plans.* It addresses a global opportunity (estimated to be) three to four times as large as iPhone 3G."
How about an iPhone that is fully functional but a plan that allows the consumer to choose what features he or she needs. Personally I can not stand the constant ringing of a cell phone but I like one that has iPod, Wifi and data, i.e. Email, SMS and surfing the web...
My two cents for the day...
His clients won't be thanking him anytime soon.
What kind if idiotic terminology is iPod Phone? I much prefer iPhone Jr. or Son of iPhone ... NOT!
heh
_____________
What kind if idiotic terminology is iPod Phone? I much prefer iPhone Jr. or Son of iPhone ... NOT!
I predict the new name is : ApplePhone!
To match its retarded sibbling- AppleTV.
iTablet, about 30% larger than the touch would also kill with these options:
- optional audio phone capability.
- optional telcom data plan (w/ or w/o audio phone).
- wifi std
Yes. Apple, do it!
Abramsky sounds like someone who got diss-ed by Apple for some reason.
I don't see it that way at all, Abramsky has a more reasoned approach than many of the analysts. Frankly I believe Apple is way over priced relative to other companies available on the market.
This is a key concern and looks to why many people invest in the market which as we know is to make money. Even if one where so lucky as to see Apple double in price in two years time that is a mighty bad result if the market place is loaded with companies likely to do much better in two years time. One thing is always clear in a major reccession is that companies become very cheap and this buying opportunities. From the stand point of some body in the market to make money Apple is a bad buy right now.
The other thing that is very important is that a ship without a captain is bound to wander the seas. Apples reluctance or inability to get new products out the door is a huge problem that has to be addressed. Note the word NEW as I don't see another revision to iMac as a new product, for the desktop I'm talking new platforms. Even the iPhone segment has not been served well as one model / form factor is not enough. Frankly it looks like Apple already has management issues when it comes to keeping the product line up fresh. You see it in these forums every day with people being feed up with the state of hardware.
The guy is waaaay off the charts. Wow.
No I don't buy that but rather I think he sees the world through clear glasses rather than the rose colored ones. People get all excited about last quarters numbers but mis some important realities. One was that it was the Christmas season and even there much of the sales came at the last minute. Another is the tanking of desktop sales hard. Look closely at Apples results and you should see all sorts of warning signs. One just needs to ask - with all these issues is Apple really an investment bargain? The answer clearly is no.
Dave
How about an iPhone that is fully functional but a plan that allows the consumer to choose what features he or she needs. Personally I can not stand the constant ringing of a cell phone but I like one that has iPod, Wifi and data, i.e. Email, SMS and surfing the web...
My two cents for the day...
Not gonna happen.
BUT if they brought out a 5-7" screened tablet like the touch but with 3G capabilities it would live under the umbrella of being a computer more than a cell phone and could very well work out fine for Apple.
As for these analysts..... We need to round them all up with the bankers that provided sub-prime mortgages and the customers that took them on knowing that they could never pay them back and push them all off of a ledge, preferably the Grand Canyon's countless drop offs.
Why people listen to these jokers is beyond me.
I don't see it that way at all, Abramsky has a more reasoned approach than many of the analysts. Frankly I believe Apple is way over priced relative to other companies available on the market.
This is a key concern and looks to why many people invest in the market which as we know is to make money. Even if one where so lucky as to see Apple double in price in two years time that is a mighty bad result if the market place is loaded with companies likely to do much better in two years time. One thing is always clear in a major reccession is that companies become very cheap and this buying opportunities. From the stand point of some body in the market to make money Apple is a bad buy right now.
The other thing that is very important is that a ship without a captain is bound to wander the seas. Apples reluctance or inability to get new products out the door is a huge problem that has to be addressed. Note the word NEW as I don't see another revision to iMac as a new product, for the desktop I'm talking new platforms. Even the iPhone segment has not been served well as one model / form factor is not enough. Frankly it looks like Apple already has management issues when it comes to keeping the product line up fresh. You see it in these forums every day with people being feed up with the state of hardware.
No I don't buy that but rather I think he sees the world through clear glasses rather than the rose colored ones. People get all excited about last quarters numbers but mis some important realities. One was that it was the Christmas season and even there much of the sales came at the last minute. Another is the tanking of desktop sales hard. Look closely at Apples results and you should see all sorts of warning signs. One just needs to ask - with all these issues is Apple really an investment bargain? The answer clearly is no.
Dave
Abramsky is constantly wrong. Like, you can set you're watch by what he says. (knowing it's wrong)
I notice people tend to like the guys that say what they agree with.
You're down on Apple, so I can understand you being in agreement with this hack.
I don't disagree that there are warning signs in SOME of the numbers. But what you seem to leave out, is Apple is handing everyone else their A$$.
I think you're right, this last quarter was the Christmas season. Not sure if you noticed, but last year Christmas was in the same quarter.
Next year, Christmas will also be in the first quarter.
Kind of makes it easy to compare numbers when Christmas doesn't move around.
As for how bad the numbers were, biggest ever. Sales. Profit. etc.
In a recession.
Go look at Nokia. (ouch)
Ask the people layed off at MicroSoft today if they see "trouble on the horizon" at Apple. (double ouch)
I'm not saying there couldn't be a big downturn around the corner, but if that happens it will absolutely KILL the weaker companies like Rimm and Palm before any real problem surfaces for 31 bucks in cash on hand per share Apple.
Reality.
iPod Phone, having no expensive data plan, would make Apple billions and take sales away from competitors.
Yes I agree. More so it seems that Apple kinda agrees when they said they won't enter the voice only market. I be believe this is true but doesn't exclude an iPhone Nano as all they would need to do is include WiFi.
In some ways the lack of a cell data plan does blow out the whole idea of a constantly connected machine. But such a machine is exactly what many would wantbright now to simply avoid the data plan expense.
iTablet, about 30% larger than the touch would also kill with these options:
I'm a huge advocate of such myself! Such a device would right size it for gaming, eBook reading and even video viewing while traveling.
- optional audio phone capability.
- optional telcom data plan (w/ or w/o audio phone).
Yes to both above. More so make the data modem be a plug in module so that we can buy the mobile data plan of our own choosing. I see this as a key capability in future devices as the number of RF services expands. Plus it is good for people that travel.
- wifi std
Yes. Apple, do it!
Yeah do it!!!
It is Apples inability to leverage it's Touch tech to deliver such products that makes Apple such an investment risk right now. Imagine if Paom ends up in the clear to produce Pre and it takes off. Does anybody here think they will spend years getting the next product out the door based on that tech? No they won't if the device is at all successful. In the case of Touch Apple is really dropping the ball with the failure to expand the product line in natural directions.
That my boys makes Apple a bad investment.
Dave
{Blah blah.....] That my boys makes Apple a bad investment.
Dave
Rule #1 of investing: Do not confuse good/bad company with good/bad investment.
If you are unsure of what I am talking about, can I be your broker?