It's What Apple's Not Doing That Has Analysts Worried

Apple (AAPL) turned in a relatively uneventful performance at the company's final appearance at Macworld, an annual trade show and general Mac love-in this week that owes its existence to the Cupertino, Calif.-based company. And that has analysts wary.

The iPhone-maker announced "incremental enhancements" to some software like its iLife and iWork applications as well as a new 17" MacBook Pro. It also unveiled a new pricing strategy for the now universally used iTunes, among other improvements to the music-selling software.

Nothing all that juicy according to analysts who've grown accustomed to being dazzled by Steve Jobs & Co., but the upgrades show the company's, well, doing something.

It's what Apple is not doing that has them nervous.

To begin with, the company did not meaningfully lower average selling prices at a time when discretionary spending is falling. "Price points are mismatched to tightening budgets," said Mike Abramsky of RBC Capital Markets, who has a Sector Perform rating on the stock and $125 price target.

The new 17" MacBook Pro is a prime example, "still" priced at $2,799, said UBS analyst Maynard Um. "We see little catalysts for consumer spending," said Mr. Um, who left his rating unchanged at Neutral with a price target of $110.

Yet most importantly perhaps, Apple gave no guidance on iPhone sales. Unlike at other Macworld events, it gave no outlook on how well it expects the wildly popular next-generation media device and phone to sell.

The lack of visibility came one day removed from an announcement from Rogers Communications Inc. (RCI), one of its largest North American customers, that Canadian iPhone sales were down almost 50% from the previous quarter.

Analysts now expect iPhone sales to fall between 20% and 28% in the current quarter, with total volume sales of 4 million units, down from the 5.5 million the Street originally forecast.

Peter Misek, an analyst at Canaccord Adams, who has Hold on the stock and an $80 price target, said:

We see the possibility of near-term downside to Apple shares driven by the lack of material product updates, tepid iPhone sales and [previously] overly bullish analyst forecasts for the quarter and full year.

Comments

[who:]

Too much expectations is not a good thing. The launch of the iPhone has been very successful, most Apple and non-apple users willing and available will have already made the change to the iPhone. Available in the sense that most people sign up with carrier which has a contract of 12, 18, 24, etc. months and their contacts have ended.

What is missing is China has just issued its 3G license and the phone companies are ready to launch. China Mobile will sell the iPhone - the next major impact to iPhone sales??

Jan 08 10:57 AM

[techbull:]

Hey FP Investor how many shares of Apple are ya short! Maybe you should write about what Microsoft isn't doing right. They just did a tech presentation and came out with another version of windows - wow - their really knocking it out of the ballpark. Maybe you should go work for Apple since you think you know how to run Apple better than it's being run now. Could it be possible that Apple isn't lowering their prices because they don't have to and wouldn't that be a sign of weakness.

Jan 08 10:59 AM

[Macbeutling:]

I cannot understand why every analyst want´s Apple to lower their prices?
Could it be possible that the numbers in which they are selling the new Macbooks are so high that there is no need to lower them?
I am sure they will act wenn the selling-numbers will tell them that it is time to react.

Jan 08 11:20 AM

[BMWTwisty:]

Bogus expectations lead to disappointment and just feeds the short-sellers. Bloggers are full of crap. Apple's fundamentals are what you should be looking at. Jim Goldman is the only guy who understands, and writes accurately about, Apple other than Andy Zaky.

Jan 08 11:21 AM

[2bitRick:]

Another pile of analyst crap. It's beginning to smell around here.

Jan 08 11:50 AM

[Zoltan L. K...:]

The "relatively uneventful performance" was in reality an event in itself. It signals a completely new continuous corporate strategy. No single most important shows anymore. More products and more iterations with more announcements. Let's call it a real time corporate development, that is smoother, than the one before. This is also signalled by "incremental enhancements" to applications, and the relatively short upgrades of Mac OS in comparison to Windows.
Apple "did not meaningfully lower average selling prices", but it did offer more bang for the buck, as it usually does. This means, the company does'nt want to compete in market segments, which are occupied by commodity like undifferentiated hardware. Why should it? Especially why change strategy in a downturn? Apple is still focusing on core customer needs and doesn't want to sell anything at any price to anyone.
Just an advice for financial analysts: separate business cycle movements from corporate strategy in Product markets.

Jan 08 12:19 PM

[Timeline St...:]

First, while Macworld didn't provide revolutionary products, it did highlight a number of stealth business strategies that will quietly build the brand and profits. There was a huge amount of user value announced, mostly on the software side.

Second, why should Apple lower iPhone prices significantly? They have built a massive pile of deferred revenues and profits through sales of at least 19 million iPhones at $600 each (13 million known in 2007 through AAPL Q4'08 PLUS estimated 6 million in AAPL Q1'09). These deferred earnings provide a massive amount of inertia in the effects of any single quarter.

Perhaps the analysts should leave the price setting to Apple. They seem to know what they are doing. Do these analysts honestly believe that a company as sophisticated as Apple, with their wireless checkout in Apple Stores, isn't managing prices to optimize revenue?

Peter Misek, by the way, practically comes in his pants when talking about RIMM, so one can't really trust his opinion. Google him for more information about his bias.

Jan 08 12:24 PM

[Don Bowey:]

This is another useless bit of "news". Apple doesn't need to be micromanaged by analysts.

Can't find a real job?

Jan 08 12:33 PM

[Johnnymack:]

ahhh! did that feel good? I hope so! 'Cause it's the last one you'll ever get!
No more MacWorld to pick apart!
Think of this as "break up sex"!
So Steve used to give a great show. Nice! I enjoyed many of them.
But to put the whole company through these higher and higher expectations every year was just getting too ridiculous!
"aw shucks! He didn't do a 'One more thing..." this year!"
(so the whole show sucked!
Now you're upset that they didn't drop prices, right?
Let me guess... if they DID drop prices wouldn't we honestly hear a lot of concern about "shrinking revenue/margins"??

Jan 08 12:38 PM

[techbull:]

It does smell around here like manipulation non stop, bashing on a daily basis. Apple said S.Jobs wouldn't be at Mac World, and that it would be the last MW and because there were no usual new product rumors that there probably wouldn't be any new great products -the stock takes a big hit on all of this. Then come the new batch of rumors Steve might be there (even though he said he wouldn't) Apple might have "One last thing" (even though we knew there probably wasn't). This was the manipulators way of starting to set up for another bash and so called disappointment even though the stock was punished for the news the first time, because Steve wasn't there and even though he sent a letter to tell of his health, according to the bashers, Steve is now definitley lying and dying. It is a no win situation whatever Apple does the bashers will find a reason why they did or didn't do things a certain way. Hopefully there will be someone better running the SEC when we change Presidents and they will investigate and follow up on some of these so-called journalists that keep putting out bad and damaging rumors of heart attacks, fake obituaries and deteriorating health stories and find how they are financially benefiting from these stories and the stocks movement.

Jan 08 12:46 PM

[top_tier:]

Apple didn't lower prices simply because they don't need to. Aghast!

Why should/would they?If they're continuing to sell, which, if we're being honest, would suggest Apple is in fact doing very well. Right? Unimaginable! Say the analysts. This does not fit our formula! Say the analysts. Why propose as another alternative that Apple may be doing incredibly well in this tough economic time, and why admit that Apple has been incredibly skillful at pricing to market historically! Say the analysts.

Meanwhile the analysts whisper amongst themselves "we want to buy lower, let's not let on to anything positive for goodness sake".

Jan 08 01:13 PM

[jmmx:]

reported:
-- The new 17" MacBook Pro is a prime example, "still" priced at $2,799, said UBS analyst Maynard Um. "We see little catalysts for consumer spending," said Mr. Um, who left his rating unchanged at Neutral with a price target of $110. --

Uh, Mr Um - this is not a consumer product. As always, Apple has increased the user value significantly without changing the price (as noted in comment above). I would say that you are ummm - clueless.

And, as Don Bowey noted above: "Apple doesn't need to be micromanaged by analysts." I mean - these guys are laughable!

IMHO

Jan 08 01:34 PM

[Caltorguy:]

3 grand for a MacBook Pro??? A laptop with similar features from HP is 1/3 the price....how much more are people willing to pay to appear "cool"? Maybe Apple can do a co-branding deal with Hermes or Gucci....'cause they're doing well these days...

Jan 08 01:53 PM

[taojones:]

It took apple decades to build the pricing structure. once broken they can never go back . this is why jobs piled so much cash up… to weather downturns like this. cutting prices means cutting corners and that has always been a disaster for apple. i point out in the early i-book soldering the ethernet port to the mother board with no supports , the weight of the chord was breaking the port free of the motherboard causing apple to replace a bunch of them. as long as value is greater than price apple will do just fine. let the "pc by the pound" pundits fight out the commodity wars Apple will stay above the fray. you don't see Tiffany having a fire sale now do you mr analyst!

Jan 08 01:56 PM

[techbull:]

It also seems a bit suspicious that the genius from FP Trading Desk didn't feel free to put his/her name on this article, he's hiding behind the company name. How can anyone take an article like this seriously when the person writing it doesn't want to be known. Or maybe one of these amazing PC's that are in competition with the Mac just spit this out on it's own through the newer and better Windows 7 program. I've heard PC's don't need people to run them they have a mind of their own. Or maybe Steve Ballmer is the real author, he did say he's a "PC" in his keynote.

Jan 08 02:12 PM

[martins:]

Expectation is a prison.

Jan 08 02:19 PM

[iNeal:]

" A laptop with similar features from HP is 1/3 the price. " .... HP does not make a laptop with similar features because they cannot run OS-X. Ever tried a Mac ? You would dump Windows and stop shorting AAPL.

Jan 08 02:39 PM

[Evil Santa ...:]

Gesh, who doesn't want an iphone, itouch, imac, etc. If you tried to buy an itouch this Christmas, you know how Apple is doing. Their products are still in early phase I of a product's life cycle. You don't lower prices. Plus, wait until this Apple generation that grew up with ipods gets to where they influence the decisions about what businesses buy. The products will be in phase I for a long time.

Jan 08 02:57 PM

[turnkey:]

Well if the idiot analysts who wouldn't know shit from shinola are worried they must be right ...

The idiots who listen to them obviously don't remember or know nothing too.

How come all these geniuses don't have their own successful businesses or have CEO jobs? Oh yeah they did...and isn't that (acumen) the reason for the financial meltdown???

Jan 08 03:19 PM

[Hayweed:]

The analysts are fretting because NPD claims mac year over year sales while up 22% in October were down 1% in November. That is still way up while prices are firm. Let us say 11% rise in revenues over 2 months with margins about the same. The pc makers recorded 7.5% gain in November but the average selling price is down about 20% which is a net loss in revenues with lower margins. Apple is holding the line and the analysts can't believe they can sell premium in this economy. Look at cars, the big commodity makers GM, Chrysler and Ford are almost bankrupt while BMW and VW are doing fine.

Jan 08 03:44 PM

[lnphoto:]

I do not understand why analysts only look at gross sales $ not profit $. When you cut prices all the cut comes from profit, that is the reason so many companies are in trouble

Jan 08 03:45 PM

[alg:]

Are these not the same analysts who early on proved that Apple could not be a success in the retail store business.

Jan 08 04:28 PM

[maniac:]

The analysts are concerned. Big deal. Most of them just do not have enough brain to understand what kind of business Apple is running. The reason prices are not coming down is because people are still willingly buying Macs. Ever been to an Apple store lately. Always full of people, whether it is Christmas or not. Unlike the commodity priced PC, people who insist on a Mac are people who are attracted by the software you can run on it, iLife is one of them and it does not run on windows. Moreover, with an Intel Mac you can easily run several different OSes on one machine and people are willing to pay a higher price for a machine just because of this feature. As to the drop in the number of Canadians buying iPhone, this has a lot more to do with the outrageous contract price that Rogers charges and Canadians simply will not stand for it. A lot of them have expressed an interest in getting an iPhone, but will simply not pay for a contract with Roger. It is just sad that Apple could not get another telco to carry the iPhone there but I supposed with a small population, it is harder to get another telco with the kind of network infrastructure in place and so Roger is free to exercise its monopolistic power to the hilt.

Jan 08 07:52 PM

[Neil Anderson:]

Rogers has minimal to non-existent coverage in my area of BC.

Jan 08 10:44 PM

[jmmx:]

@Caltorguy
You say:
“3 grand for a MacBook Pro??? A laptop with similar features from HP is 1/3 the price....how much more are people willing to pay to appear "cool"? Maybe Apple can do a co-branding deal with Hermes or Gucci....'cause they're doing well these days...”

Well I did a comparison between the HP laptops and a Mac. Yes –it is true – you CAN get an HP laptop for 1/3 the price of a MacBook. BUT NOT EQUIVALENT !!

So I went to HP website and created a ROUGHLY equivalent hardware configuration.

Standard MacBook (new model with unibody)
• 2.4GHz Intel Core 2 Duo
• 2GB 1066MHz DDR3 SDRAM - 2x1GB
• 250GB Serial ATA Drive @ 5400 rpm
• SuperDrive 8x (DVD±R DL/DVD±RW/CD-RW)
• Full specs: www.apple.com/macbook/...

Here is the HP dv4tse series
Operating system Genuine Windows Vista Home Premium with Service Pack 1 (64-bit)
Processor Intel(R) Core(TM)2 Duo Processor P8400 (2.26 GHz)
Display 14.1" diagonal WXGA High-Definition HP BrightView Infinity Display (1280 x 800)
Memory FREE Upgrade to 2GB DDR2 System Memory (2 Dimm)
Graphics card 512MB NVIDIA GeForce 9200M GS
Hard drive 250GB 5400RPM SATA Hard Drive with HP ProtectSmart Hard Drive Protection
Personalization Webcam Only with HP Imprint Finish (Intensity)
Networking Wireless-G Card with Bluetooth
Primary DVD/CD drive SuperMulti 8X DVD+/-R/RW with Double Layer Support
Primary battery 12 Cell Lithium Ion Battery
Productivity software Microsoft(R) Works 9.0
Photography software Roxio PhotoSuite 9 Deluxe
DVD/CD burner, movie software muvee Reveal

Now what is the price for this HP: $1281.99

So the difference is only about $300. And what do you get for your $300 for the Mac?
• 512MB NVIDIA GeForce 9400M This more powerful GPU is not available on the HP
• Wifi card is n compatible – also not an option
• Unibody
• Mac OS X complete with iLife integrated suite.
You may argue as to whether or not these features are worth $300 – but you cannot argue that the HP is 1/3 the price.

OK, OK – you said a MB Pro
Let’s compare here:
MacBook Pro – 17” (1920 by 1200 ) model:
• 2.66GHz Intel Core 2 Duo
• 4GB 1066MHz DDR3 SDRAM
• 320GB Serial ATA Drive @ 7200 rpm
• SuperDrive 8x (DVD±R DL/DVD±RW/CD-RW)
• MacBook Pro 17-inch Hi-Resolution (1920 by 1200 ) Glossy Widescreen Display
• Backlit Keyboard (English) / User's Guide
PRICE: $ 2,849.00
====
-- Customize your dv6t series
Operating system $50 OFF! Upgrade to Genuine Windows Vista Ultimate with Service Pack 1 (64-bit)
Processor Intel(R) Core(TM)2 Duo Processor T9400 (2.53 GHz)
Display 16.0" diagonal High Definition HP BrightView Infinity Display (1366x768)
Memory FREE Upgrade to 4GB DDR2 System Memory (2 Dimm) from 3GB DDR2 System Memory (2 Dimm)
Graphics card 512MB NVIDIA GeForce 9200M GS
Hard drive 320GB 7200RPM SATA Hard Drive with HP ProtectSmart Hard Drive Protection
Networking Intel Next-Gen Wireless-N Mini-card with Bluetooth
Primary DVD/CD drive LightScribe SuperMulti 8X DVD+/-RW with Double Layer Support
Primary battery 12 Cell Lithium Ion Battery
Productivity software Microsoft(R) Works 9.0
Photography software Roxio PhotoSuite 9 Deluxe
DVD/CD burner, movie software Cyberlink DVD Suite Premium 6
Back-up & media management MigoMobile MEDIA - Premier
PRICE: -- $ 1,848 (after $150 rebate)

Whoa! That is $1000 different, a long ways from 1/3 but still a lot.
BUT! What do you get for this?
1. Faster processor,
2. Much better screen (you ARE a professional yes?)
3. Unibody + touch mouse trackpad
4. Mac OSX
5. *** The graphics powerhouse – 2 GPUs:
• NVIDIA GeForce 9600M GT graphics processor; 512MB of GDDR3 memory
• NVIDIA GeForce 9400M graphics processor with 256MB of DDR3 SDRAM shared with main memory3
Note that the Main one is a 9600M GT – more powerful than the best available for the HP

If you do not want all these extras, then you can buy a similarly configured 15” at $ 2550. You still get all the extra features. The display at 1440 x 900 is still better than the HP.
In the end – it is impossible to buy a similarly configured HP Laptop – doesn’t exist.

--- SO JUST STOP THIS BULL ABOUT 1/3RD THE PRICE. IT JUST AIN’T TRUE! --

Jan 11 03:08 AM

[brewer:]

APPL is kicking ass and taking names, and Wall Street is too stupid to notice. They'd rather hold on to those $19 shares of MSFT. I hear Windows 'Seven' is going to be just great (when it comes out in 2020...)

Jan 11 10:47 PM