updated 05:35 pm EDT, Mon October 13, 2008
MacBook price drop benefit
Bernstein Research has upgraded AAPL stock status and claims that a $900 MacBook could lead to substantial revenue and market share gains, as reported by AppleInsider. The firm placed the stock in the "Outperform" category, citing its current price as overly discounted and expects its near-term financials to remain strong even in the current economic maelstrom. This is undoubtedly good news for Apple, which has seen its stock battered in the recent market sell-off and downgraded by other firms amid fear of consumer spending declines.
The anticipated price cuts and distribution expansion are key factors contributing to confidence in Apple's future performance. Analyst Toni Sacconaghi suggested that the Mac division represents the "biggest wildcard among Apple investors today." Bernstein's analysis found that a MacBook entry-level price of $900 could enlarge the company's addressable notebook market by 50 percent in terms of revenue with the potential to ship 67 percent more units. If Apple were to drop the price by another hundred dollars, they could see revenue gains of 69 percent, according to the study.
Although the short term performance of Apple is difficult to forecast with certainty, the firm suggests that the company's cost structure and use of contract manufacturing lead to a high level of variable costs, which offers a lower earnings downside risk. Nonetheless, Bernstein put a wide range on near-term price fluctuations that could fall anywhere between $75 and $135.
"Apple's COGS (Cost of Goods Sold) are nearly entirely variable, and operating expenses relative to gross margins are low," Sacconaghi pointed out. "The upshot is that Apple's earnings per share suffers less to a given revenue reduction than many of its peers."
The company, like others in the consumer electronics segment, will face uncertainty going into the holiday shopping season. Consumers are expected to spend less this year, at a time when Apple could see a 20 percent drop in iPod revenue from 2007. The tighter wallets of shoppers could be offset by the company's successful marketing to teens, with 22 percent planning to purchase an iPhone in the next six months and 84 percent of the media player market held by iPods, as indicated by a recent Piper Jaffray survey.