Analysts Sounds Off On Apple

Posted by: Arik Hesseldahl on November 25

Three big reports on Apple from financial analysts have hit the wires today. Charlie Wolf of Needham and Co. released his latest WolfBytes report, while Gene Munster of Piper Jaffray asks “12 Unanswered questions on Apple” relating to the Mac, the iPod, the iPhone and Apple’s retail business. Meanwhile Shaw Wu, having moved to Kaufman Bros. Equity Research from American Technology Research, initiated coverage today.

Let’s dig into Wolf’s report first. His topic: Insights into trends in Apple’s market share in the PC industry. He argues that Apple was a “good news/bad news” when it reported results for the quarter ended in September.
First the bad news:

“Apple’s invasion of the U.S. home market sputtered. The growth in Mac shipments in this market slowed abruptly from 54% in June to just 9% in September, and the Mac’s share in this market actually declined from 12.0% to 10.3%. Since the decline was confined to the notebook segment, the most plausible explanation is that potential buyers of Mac notebooks postponed their purchases in advance of the well-publicized introduction of new models on October 11. October sales data tend to support this view.”

Mac sales to home users, he says, contracted sequentially from 753,000 to 727,00 units. In 2007 sales to home users grew by 142,000 units.

The good news he says was that the Mac posted an “unprecedented gain in its share of the U.S. small business market. Mac sales in this market increased over three-fold and the Mac’s share jumped from 1.9% in June to 5.6%. Indeed, the increase in small business sales accounted for almost 100% of the sequential increase in Mac sales from June to September.” Among firms with fewer than 100 employees, the Mac’s share of the market ballooned from 1.9% in June to 5.6% in September while Mac unit shipments to that segment tripled, and this boost accounted for nearly all of the quarter-on-quarter growth.

Munster’s note is more wide-ranging. The first of the questions is “What is the current state of Apple’s business?” Answer: Mac business is healthy, iPod business weakening. All in all, the December quarter is shaping up to match Wall Street expectations. Here’s three more:

Will Apple release a netbook?

“If Apple chose to release such a product, we believe the most likely candidate would be an 11-inch MacBook Air priced between $800 and $1,000, which could be released some time in CY09. Further down the road, Apple could leverage its multi-touch patent portfolio for a product with a similar price range and feature set in the form of a tablet Mac which is more likely to be released in calendar year 2010 or beyond.”

How far are we into the iPhone’s international rollout?

“By the end of calendar year 2008, Apple has indicated that it will expand the iPhone’s addressable subscriber base significantly…. According to our checks, availability will grow from a subscriber base of about 660 million subscribers in 44 countries in late Aug. to about 989 million subscribers in 73 countries by the end of the year…”

When will Apple release a new iPhone?

“Most investors believe the iPhone hardware will be the same throughout 2009 as it is today; we disagree. While Apple has indicated that it differentiates the iPhone from its competitors by software, the company has not addressed its strategy to segment the market by expanding the iPhone lineup as it has the iPod lineup. Specifically, Apple could offer a model at a lower price than the current $199 entry price and/or a premium model at or above the higher priced $299 16GB model.”

Finally Shaw Wu, ever the aggressive Apple Bull keeps his eye hopefully on the sky given Apple’s recent sub-$100 share price. His current price target is $120 a share.

“While continued difficult global macroeconomic headwinds and their impact on technology and consumer spending concern us, we believe the Apple adoption story is still intact and believe the company is positioned to weather the storm better than most,” he writes.

He says he thinks its possible that Apple’s global share of the PC market – still only 3% as opposed to its US share which is at or near about 10% — could double. “We see this being driven by switchers (Windows® users) who are attracted to the Mac with its ease-of-use and earned position as the platform of choice for ‘digital lifestyle’ users,” he writes.

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