* The completion of the Intel transition, hefty store traffic, and successful Mac advertising could continue to spur momentum in the Mac business. Hence, investors should expect accelerating Mac share gains.
* In the September quarter, Apple’s share gains began to gain significant momentum, with Mac shipments growing 30% versus market growth of 7%.
* Although the Apple stores will continue to play a key role in capturing new users for the Mac platform, management has said that the expansion of third-party retail distribution for Macs could be a critical incremental growth driver as well. Relationships with Best Buy (BBY) and Circuit City (CC) appear to be going well, and I believe these relationships will expand rapidly in coming quarters as Apple releases more quality products. i.e. iPhone
* I believe that the new wide-screen video iPod and the Apple-branded cell phone will be launched in early 2007, providing a sustainable boost to the iPod story, especially if its unlocked.
* AAPL's management said that incremental growth is likely to come from Mac share gains, iTV, and “new product categories.” In fact, management mentioned unnamed new products as a key driver of growth.
* 2007 could mark an important rebound in product innovation from AAPL, and I believe the wide-screen video iPod and the Apple-branded cell phone, aka iPhone, represent two of the most likely new products for the upcoming calendar year, and of course, there will likely be some other unexpected products as well.
Now a few notes from a UBS report detailing their talk with AAPL management.
Key takeaways from UBS's meetings with management:
1) While other tech companies may be worried about a potentially sluggish holiday season (i.e., Vista pause), Apple didn’t seem too worried at all. Apple continues to be upbeat about its share gain potential in Macs, especially as it adds 40 more retail stores in FY07 [from 174 currently].
We believe Mac demand continues to be strong and the company continues to roll out new products such as the new MacBook Pro units, featuring Core 2 Duo processors, announced on October 24.
2) While providing no details, it is clear that Apple has a robust pipeline of new products expected for 2007. The flow of new products is likely to start at Macworld in January, where we will also see another glimpse of Leopard, Apple’s OSX Operating System, and iTV, Apple’s answer for the digital home.
3) Margins were a key discussion point as Apple recently reported GAAP gross margins of 29.2% [70bps above our estimate] due to benefits from higher margin Mac sales offset by declining iPod pricing and iPod mix. For 1Q07, Apple currently expects GAAP gross margins of 28.25% [-90bpsq/q] due to the impact of continued iPod strength, a full quarter of shipping the new iPods with lower ASPs, and contribution from the $79 iPod shuffle, which appeared on store shelves November 3.
While Apple obviously did not reveal any new products, management still seems very confident in its market position and its ability to drive the “multiplier effect”—the longterm tone was very upbeat with confidence in the product roadmap.
* UBS believes that Mac sales will benefit near term from the delay of Microsoft’s Vista and strong acceptance of new Intel Macs. In FY07 and beyond, we expect new software from Apple[Leopard] and Adobe [CS3] should stimulate further growth in Mac sales.
* UBS, like the rest of Wall Street, continues to expect new video iPods [new media players] with bigger screens and more content deals for films to come in the upcoming months; however, we still do not expect any new video iPods until early 2007 after Macworld.
* These devices are included in our assumption for 51 million iPods to be sold in FY07, but we are not expecting a significant amount of this product in the 11.6 million we expect for 2Q07. If this product ships in bulk before March, there could be upside to these estimates as long as nano sales remain robust.
* In the UBS report there were details about how they expect iPhone to boost Apple's share and revenues. Due to its length I'm unable to post, though I'll try to do so ASAP. Stay tuned
In the end, I continue to believe solid Mac sales will drive margin expansion throughout fiscal 07 and investors should remain confident in the company’s ability to generate solid growth from iPods and music accessories.