ML on iPod Hi-Fi event

Apple may be becoming a victim of its own success, as both users and analysts were disappointed by the announcements at Tuesday's invitation-only media event. Based on the product introductions and reaction by media and users, analyst Richard Farmer of Merrill Lynch said that Apple needs to be more careful about hyping its invitation-only media events: "We wonder if the announcements were substantial enough to merit an invitational media event and suspect Apple needs to be judicious if it expects to continue to convert journalists into marketing instruments with its aura of secrecy." Farmer also offered some caution about Apple's strategy to grab a larger share of the iPod accessory market.

"The iPod Hi-Fi and leather cases are just the latest examples of Apple's strategy to harvest a greater percentage of the accessories market derived from the growing iPod installed base," said Farmer in a note his clients obtained by MacNN. "We see the strategy working in the short term but creating ecosystem risk in the long run."

Echoing similar concerns by other analysts, the firm said that Apple's "increasingly aggressive moves" into the iPod accessory market and its move to collect an "iPod tax" with its "Made for iPod" logo and licensing program may be detrimental in the long term. "Apple risks alienating its ecosystem and creating a margin umbrella that is ripe for disruption from other platforms over time."

Farmer also said that sales of the high-end iPod accessories, which are priced at premium over competing products, would be an important test for Apple's brand. The firm noted that the Bose SoundDock digital music system provides a similar set of features for $300--$50 less than Apple's iPod Hi-Fi. Without comparing quality, Farmer note that "for an extra $50 the iPod Hi-Fi product offers battery power capability for music on the go and audio inputs which allow for streaming music if used with the optional Airport Express."

In addition, the analyst warned that the new Intel-based Mac mini was only an incremental step in the ongoing Intel transition and continued to be cautious as he noted the lack of important native Intel applications.

"The new Mac mini is an incremental step in the ongoing Intel transition. Though the long run prospects for Apple share gains on the Intel platform are likely to be promising, we continue to be concerned about brand risk from potential glitches in the Intel transition as well as delayed availability of native software from Adobe and Microsoft." Other analysts have also cautioned that lack of native professional applications may slow the transition and impact sales in the near-term.

While the firm's earnings scenario analysis showed a "modestly positive skew" in its risk versus reward analysis, Farmer said that the upside was not significant enough to change its rating on Apple stock. Merrill maintained its "neutral" rating on the stock.

by MacNN Staff