Think Equity Notes iPod Growth Ends; Larger Questions With Apple

Think Equity peed on iPod's results, but likes Apple because of the CPU share-gain-story. Jason thinks the whole company's overrated:

Think Equity: It happened. iPod revenues reversed a 17-quarter trend and posted minus 1%y/y growth. With prospects and the inevitability of slowing iPod momentum, they took AAPL shares down 28% to a calendar year low of $50.67 in mid July from year-ago levels. After all, investors had become accustomed to 11 quarters of triple-digit iPod unit growth and it was difficult to fathom an Apple without them. With iPods at 'only' 32% of revenues in 2Q, the real earnings power generator stepped forward. Apple is a CPU share gain story, and this is driving margin expansion. Raising target to $130.

Jason Jones: Hoopes has done a great job with AAPL and was early with the call that AAPL is a CPU (and OS) play, not an iPod play. I think the iPhone is overhyped (unless they subsidize enough to get the price to less than $150), I don't like their clunky interface with MSFT Office, I am not surprised that Leopard is delayed. I also think the Jobs is walking a very fine line with the options backdating issue.

To top it off, I like the dorky guy in their commercials more than the cool guy and I want to buy a MSFT PC every time I see the commercial.

• • •

From Engadget: We got our hands on an internal AT&T iPhone Q&A document. The highlight: "... no subsidies are being offered on the phone at this time."

JJ: 1) no subsidy means too expensive for the average consumer, especially since everyone already has an ipod; 2) it will be wifi compatible so I think battery life will be an issue although I have heard that Infineon chips may be used and they do a good job of integrating power management into their baseband/RF offerings; 3) they will include visual voicemail – I wonder whose software they are using for VV?

Comments

[Dan Poarch:]

If all you're looking at is the iPod, the iPhone, and the minor delay for Leopard then yeah, Apple is risky. When you realize that those are only parts of the puzzle, with the release of CS3 and Final Cut in the pro market, superior and affordable laptops, and of course the x-factor of the AppleTV.

iPods are going to slow down now that everyone has one. But they will continue to sell as people buy replacements, Mom and dad stop fighting over the one the kids gave them and they buy one each, etc.

iPhone could be a flop, at first, and there's no question that whether it's even real or not that the specter of it has changed the game. Again, people were happily spending $500 on iPods two years ago. Now you get a micro-laptop for the same money. I think it's a ridiculously high price for a phone. And I'll be first in line to get one because I'm tired of spending $100 on crap phones that can barely make a call for all the useless gadgets.

Spend more money and get more value, it's so retro...

Leopard. Good lord, most of the people loudly wringing their hands over the delay couldn't tell you one of its features. It's OSX 10.5, not OSX 11. A three month delay is to be expected. This isn't Microsoft delivering a substandard product 3 years late that will take 2 years for most users to adopt.

CS3 & Final Cut. I would be interested to know how much of the upcoming $1 Billion election cycle will be spent on Apple hardware and the high-priced editors that use it. Final Cut is one of the few non-partisan choices left in America. It's not necessarily a huge bump in sales but it is a few thousand laptops in the field and few hundred sales of Final Cut Server.

The rapid adoption of CS3 and migration to new, high-margin, pro hardware will also be a small but measurable bump in sales.

Apple laptops are de rigueur. They're the new Dell. They look as good in a Targa as they do in Louis Vuitton. The same can't be said for myself.

Options scandal. Here's where it gets interesting. Two years ago Steve Jobs was told he had 6 months to live because of cancer. He beat it and he's with us today. But Apple has already gone through the scenario of "Life Without Steve." Don't think he hasn't left a few stone tablets on Mount Cupertino explaining his wishes for the next 10 years of Apple products.

There are no sure bets. $100-$110 is probably an accurate value for Apple at the moment. The iPhone still has to play out, but even if the iPhone is a failure, Apple is on rock solid footing.

2007 Apr 27 10:27 AM

[Hayweed:]

I don't know why everyone is convinced that everyone has an ipod. Even if they did, think of all the uses. I have the original 5gb firewire (used as a small backup drive). 60 gb video for playing tv shows while on the treadmill and for carrying files between home and work. An ipod nano for keeping track of treadmill workouts through nike ipod kit. But why stop there, anyone have a 6 disc changer in a car. That is dead technology. Buy a car stereo with an ipod link, buy a 4gb nano and you have a cool car stereo for about $450. You could use your normal ipod but why not just leave it in the car. My dad uses a 60 gb ipod just to store data. The uses are limitless so everyone needs to quit thinking the growth is over.

2007 Apr 30 10:46 PM