updated 12:55 pm EST, Thu February 9, 2006
Apple future is bright
Apple's short-term growth may be slow, but the company has significant potential for long-term growth, according to UBS Investment Research (UBS). After a meeting with Apple management earlier this year--including CFO Peter Oppenheimer--UBS analyst Benjamin Reitzes said that slower Mac sales due to the Intel transition and concerns of iPod nano sale declines have some worried about Apple's future. While Reitzes conceded that there are some "near-term risks to earnings upside due to the transition to Intel processors," he said that he is "still confident in Apple's product road map-- including potential for new iBooks by April in time for the June quarter, a potential "media hub" product (and more services), new iPods into year-end (including a new media player) and even a new cell phone within a year."
The recent meeting with Apple management confirmed the analyst's belief that some near-term disruption in Apple's Mac sales will occur--a belief corroborated by sales checks conducted with various Apple retail stores. Reitzes pointed out that Apple currently offers Intel processors in only two of its six Mac model lines, with the rest of the line-up set to transition by the end of the year."
"Given that the new MacBook Pro hasn't shipped yet and will likely only have eight weeks or less of shipping time in the quarter with just one model... sales of the new iMac in 20-inch and 17-inch varieties will be extremely important this quarter."
UBS and Apple management agreed that many professionals may be waiting for the Universal binary transition of Adobe and Microsoft products before purchasing new Intel Macs. Reitzes noted that some Apple store representatives are even encouraging customers to wait until more applications are Intel-compatible before making purchasing decisions. Reitzes believes that this may slow growth in the near-term, but the transition is likely to spur sales after it is complete.
MacBook Pro, iPod lineup changes
"Our surveys and conversations with Apple reveal the level of inquiries regarding the new MacBooks is extremely high, and it is clear that with more models and more applications, Mac sales can benefit. As a result, we believe any slowdown in consumer Mac shipments is only a matter of timing over the next 2-5 months."
Reitzes also commented on the recent release of the 1GB iPod nano and price reductions of the iPod shuffle as well as speculations of a "real" iPod video-- all of which point to more iPod sales, according to the report.
Apple may also expand its product portfolio. Reitzes was keenly interested in the concept of an Apple cell phone, saying that "consumers clearly want content---but lack true "plug and play" phones with the PC. "Building on success with iTunes, we believe Apple can create a phone that allows for the easy loading of content (music, video, contacts, photos and more) by docking to a PC or Mac."
In addition, Reitzes expects that the redemption of iTunes gift cards sold during the holidays and new retail traffic in general created by the "iPod halo" to help drive March quarter sales. The continued expansion of Apple's retail stores will also drive sales and profit he said.
"We [at UBS] believe iPod momentum has generated a multiplier effect through: 1) driving upside to retail store sales and profits, 2) driving sales of high margins peripherals and other related music products, and 3) beginning to accelerate Mac sales."
UBS maintained a price target of $100 on its belief that Apple has solid prospects for continued growth into 2006 and beyond.
"Our target is based on an enterprise value to sales multiple of 3x our fiscal year 2007 sales estimate, which is higher than Apple's 'pre-bubble' multiple and above its peers in the PC industry due to its much faster growth and much higher margins. We believe that Apple's shares warrant a 3x sales multiple to reflect share gain potential with the transition to the Intel platform and continued momentum in iPod sales."