Mac Attack - Beyond the iPod By Mark Veverka
Summary: Following its remarkable 3-year runup of 10x gains, Apple stock's recent plunge is largely a reflection of concerns that iPod sales are finally starting to cool off. But investors seem to be discounting the resurgence of Apple's desktop and notebook PC lines, now outfitted with fast Intel chips and the ability to run Microsoft Windows. Apple Macintosh PCs, aimed primarily at the high-end market, should begin to win over more students and business customers as the so-called 'halo effect' (the iPod's positive impact on Mac sales) finally begins to take hold. The iPod now provides Apple with over half of its $17.3 billion in yearly sales, but growth should slow to about 60% this year, down from 213% in 2005 and 469% in 2004. Valuation: Apple stock is currently trading at a 'reasonable' 25x this year's earnings, down from an average of 61 P/E since the beginning of 2004. The balance sheet is 'pristine', with more than $9/share in cash. While there could be more downside for Apple stock following July 19 earnings, encouraging news could also emerge then. The success of Apple stores and a new distribution deal with Best Buy are two more reasons to believe Apple can command a much larger market share in the PC arena, and jumpstart its stock price in the near future.
Quick comment: The upbeat, optimistic tone of Veverka's piece should give Apple stock a boost Monday morning. Two things to consider, however: the article mentions Microsoft's newly-announced MP3 player only in passing, but others believe it's an outright iPod killer. And Dell's new ad campaign and 'personalized' marketing effort will exert more pressure on Apple at the very moment it leans on the Mac for new revenue growth.