Apple becoming "mass market company"
updated 09:15 am EDT, Thu July 14, 2005
Merrill Lynch on Q3
Apple is becoming a "mass market company" according to Merrill Lynch analyst Steven Milunovich. "The next perceptual change could be investor recognition that the company is building a sustainable consumer franchise." Although the current focus is music, "look for Apple to go after video in the home with an emphasis on high definition," Milunovich said. While Apple remains extremely conservative about its upcoming quarter, the firm projects $3.9 billion in revenue and $0.38 per share. "Company guidance for flat sequential F4Q revenue and down earnings of $0.32 seems too conservative even recognizing a software decline."
Important variations from expectations included:
- (1) higher software
sales;
(2) a gross margin 130 bps above guidance thanks to software and lower
component costs;
(3) iPod unit sales of 6.2 million versus our 5.5 million
estimate.
"Mac sales reflected the halo effect though notebooks suffered a tough comparison. Mac sales in total and by product were as we expected. The 24% YoY revenue increase was slower as notebooks grew by only 3% on a tough comparison. Still, Apple grew 3X the overall PC market."
Merrill Lynch reiterated a Buy rating with a price objective of $51 per share.
Fresh-Faced Recruit
Joined: Apr 2005
the iPod brick wall
Now, the analysts begin jumping into the game, "hooray for Apple, we love this company, big things ahead." If Apple is able to use the iPod for sustained growth in Mac sales great. Apple should be okay, for a while anyway. But, the iPod's growth will hit a brick wall, when it meets a saturation point. Then, you will see prices plummet, just like they do for every previous commodity item like this (note the price of a Sony Walkman even when it was still the latest portable music technology). In a few years, or less, iPods will range in price from $29 for a flash player to $149 for a mega HD player with color screen. Apple has years and years of a good stream of revenue from this, but Apple cannot survive on this alone. Now, if the iPod gives Apple a halo effect on other products (e.g. home entertainment, etc.), then I'd agree. But that's a huge speculation when the products themselves don't exist yet, as far as we know.