Apple Exceeds Expectations Again

Jun.25.10 | About: Apple Inc. (AAPL)

Apple Inc. (NASDAQ:AAPL) fans faithfully lined up on Thursday for one of the most congested iPhone launches in the company’s history. Herds of shoppers flocked into glass-cased Apple stores as phone orders came in faster than expected. Wall Street analysts were also rushing to predict how many new devices would be sold.

“Mission accomplished,” analyst Gene Munster with Piper Jaffray said in a note to investors on Friday. His conclusion was based on a survey of 608 people in line for the iPhone 4 on Thursday in San Francisco, Calif., Minneapolis, Minn., and New York City.

“The bottom line: 77% of new iPhone buyers were existing iPhone owners (upgrades), compared to 56% in 2009 and 38% in 2008,” Munster wrote. “Apple is effectively building a recurring revenue stream from a growing base of iPhone users that upgrade to the newest version every year or two.”

Munster wrote in a note to investors that a check on Thursday morning found that nine of 20 Apple stores had already exhausted their stock, and all others expected to clear theirs by the end of the day. Earlier iPhone launches have usually taken a full weekend before significant sellouts, reported Electronista. Munster said he expected to see at least one million and as many as 1.5 million iPhones sold this weekend. The low end would match Apple’s previous best with the iPhone 3GS, and so anything higher would make the iPhone 4 launch a new record.

Oppenheimer’s Yair Reiner concurs with the 1.0-1.5-million figure and upped his price target to $345, from $320, based on strong demand for both the iPad and iPhone 4.

Apple continues to capture the attention and catalyze the passions of the American consumers in an unprecedented way.

He notes that only 26% of iPhone 4 buyers bought the new phone because their old phone was failing them, the rest “were inspired by desire rather than need.” He says 76% of those he surveyed already owned an iPhone; on average they were upgrading after only 14.7 months.

Smartphones have also become a significantly larger revenue booster for Apple. In the first quarter of 2010, the iPhone accounted for 40% of sales, vs. 28% for the Mac. In the same period a year ago, it was 27% for the iPhone and 33% for the Mac. “It’s a different company than it used to be,” said Munster. ”It’s not a traditional computer company. It’s a mobile devices company.” (BusinessWeek)

Andy Hargreaves, an analyst at Pacific Crest Securities, is also bullish on potential iPhone 4 sales. He says that Apple may sell 2 million units by this fiscal quarter ending June 26. Colin Gillis, an analyst at BGC Partners in New York, said the tech giant may sell over 10 million units by the September quarter. “Supply is more an issue than demand,” said Gillis, who recommends buying Apple’s stock. (USA Newsweek)

As for the supply shortage, Brian Marshall, an analyst for Gleacher & Co., said a new shipment of iPhones could be in stores as early as Saturday, but more likely won’t arrive until early next week. He added that Apple is having a hard time getting enough of the new custom parts, such as the new higher-resolution screen. Kaufman Bros. analyst Shaw Wu said its also possible that Apple correctly anticipated opening-day demand but sent too many phones to some of its 200-plus U.S. stores and not enough to others. (The News Tribune)

However, amid all the craze on day one of the new iPhone launch, many users experienced reception issues with the new product which could worry some potential first time buyers. Dropped calls were noticed and bad reception appeared when users placed their hands on certain parts of the phone, reported the New York Times. Apple’s CEO Steve Jobs’ high-tech solution? Don’t hold it that way.

Steve Dowling, an Apple spokesman, acknowledged that the issues experienced by users were real but analysts and investors weren’t that worried. “Apple has not had one introduction that hasn’t had issues,” said Charles Wolf, an analyst with Needham & Company. “Sometimes these things get blown out of proportion.” (NYTimes)

In addition to all the attention the iPhone is getting, analysts are pointing out that Macs are and will continue to bring in large profits for Apple. Needham’s Wolf estimates that Apple will sell nearly 13 million Macs in 2010. “It’s a real testimony to the power of the Mac brand that Apple sells these machines for nearly twice what the Windows competitors charge, and yet the sales keep growing faster than the rest of the industry,” Wolf said. (BusinessWeek)

The median price target for Apple stock based on analyst estimates is now at $325, higher than its current stock price of around $269, according to Thomson/First Call.