Apple's Asian Production: Macs Up, iPods Down, iPhone Volatile

Banc of America is out with a call on Apple (NASDAQ:AAPL) saying their Asian checks indicate recent production levels are increasing for Macs, iPod production is being cut, and iPhone is volatile.

Both desktop and notebook production numbers have moved up by 20%+ from expectations in early January, indicating potentially solid demand thus far in the March quarter, as well as some inventory replenishment. Firm believes production numbers should continue to move up throughout the quarter. MacBook Air orders also increased slightly for March, contributing to the upside. They continue to believe that desktops and notebooks are the key driver of the story.

iPod order cuts confirm BAC's conservative stance on unit growth. iPod March quarter production numbers appear to have been significantly reduced, down 10- 20% from early January and down 30%+ from early December. Current production expectations for March imply 5-10% Y/Y unit decline, versus firm's expectation for 5% Y/Y unt growth during the March quarter, implying an inventory correction and sluggish sales.

iPhone production bounces back, although still lackluster. After severe production cuts in December and early January, our recent checks reveal that production plans for the March quarter have bounced. Firm remains concerned that iPhone production and demand are lackluster.

Stock oversold and valuation attractive. They would be buyers of the stock at these levels, given our Asian checks on Mac production, and especially given they believe the main driver for the company and its stock near-term is notebooks and desktops. Reit Buy and $180 target.

Notablecalls: Not making a specific call here, just letting you know it's out there.

Comments

[Thomas A,Gaughan]

I'm a buyer.

Thomas A. Gaughan

[Tom B]

I'm all in.

[digivision]

everyone's waiting for the 3g iphones

[jswede]

the iPhone is a nice peripheral product, and definitely a part of the future, but trading the stock on the volatility (and how many are "missing!") of a product segment that is 0.5% of AAPL's revenues is incredibly short-sighted. All that really needs to be known is that it's the most successful phone launch in history, and it's not going away.

What should be the focus for longterm investors is the Mac sales (up ~50% YoY, I believe) which compose over 42% of revenues, and the fact that they are taking PC marketshare by the CHUNK in recent years. There's no reason - now that they're running Intel chips (olds news, I know, but relevant) - that PC marketshare won't DOUBLE to ~10% in the next few years, and only pick up steam from there. DOUBLING of their largest revenue, highest margin product. It's pretty much written on the wall, but not many are reading it.

My little brother, amongst other Comp Sci type work/projects, runs a little business fixing and cleaning up viruses/spyware etc for friends/family who are (were) all running Windows PCs. He brings his MacBook with him for diagnostics etc, and tells me that in the last year, at least 1/4 of the folks he does work for have bought a Mac and almost all others plan to do so next time around. There's a million stories like this - all folks need is a little exposure and they are sold. Apple stores are all PACKED all the time. Anyone selling at 130 notice that, and understand what it means??

This is such a bargain at 135, 25-30 P/E, it's like stealing.

[jmmx]

go to the Apple online store and look at the MacBook Air. Shipping date is still 2-3 weeks. Yet they are shipping now. This means that the response is higher than they anticipated. - Good news

This is their ticket into the boardroom. When the execs start seeing how well they work, they will begin to ask "Why not buy more?"

[stephenrosenman]

Back in January 2006, Apple traded at 80. Stock sold off to 50 by April on much the same stuff -- weak iPods, notebooks, poor execution, the like. By June was back up with a steady climb until its recent high of 200. That 50 was a great buying opportunity. January 2008 to now is a mirror of that time. Stock price here represents another great entry.

[My take]

Apple charges too much for a computer. Most people use a computer for just interent access. They can buy the latest NEW PC for less than $400.00 from a major PC brand and it comes with nice features (1.6GHz Intel Chip, 1GB RAM, 250GB hard disk, etc.) and all the standard warranties.

Why pay at least three times as much for macintosh? I just don't get it. Some people don't care that much about their money since using plastic credit card gives an illusion that it's not really money.

But, folks! It's your REALLY MONEY! If you have that much left over money, spend it for some worthwhile causes such as donation to a charity, don't donate it to a commerical corporation!

[MB]

My take

What are you doing on a finance website?

[My take]

If I translate what I said above to financial terms:

Apple's business model is based on premium branding on a commodity product; yes, computer is a commodity product, now. That's why PC makers have been on cut-throat competitions for decades now. Premium branding on a commodity product that people are forced to replace in 3-5 years due to newer and faster chips, is like trying to build a castle on sand.

Current fascination with Apple will give an illusion of a sturdiness in its business model, but only for so long, it will crumble down.

[blah-blah]

Execs may ask to which IT will say - well 69% of all servers are Windows Servers, Apples are not managable, don't work in AD and cost more to support than a single platform so no way but here's a 3lb Dell with the solid state drive option that works just as well and is managable in AD.

Oh by the way it's not $3K either

[Tom B]

My Take: 1) a Mac is NOT "3 times as much" 2) You haven't used a Mac, have you? I have. I would pay a ten fold premium to use a Mac, any day, no hesitation. My time and productivity are important to me. Maybe yours aren't.

[My take]

"I would pay a ten fold premium to use a Mac"

I know. The fact that Apple is making money proves that there exist people like you.

"My time and productivity are important to me. Maybe yours aren't."

What productivity? At work, I don't turn off PC. I come to work and unlock my PC screen, use it for 9 hours, and then lock the screen and leave the work. How can you lose productivity when your PC is on 24 hours 365 days a year?

I know that it is not produent to have an electronic device always on. But, it's not just any electronic device, it's a computer! You use it for a few years and throw it away when Intel comes up with a newer and faster CPU, or any other fancy device comes along such as a faster hard drive.

People used to argue about which OS is better, which hardware is better. That kind of discussion is laughable these days.

Apple buyers! Don't live in the past!

[None-Too-Great Hits]

The question here is whether a Mac is really a "commodity" in the same sense that a Windows computer is. Years ago, when Apple succumbed to the conventional wisdom demanding them to lease out the OS to other companies, the immediate result was competition cutting into Apple's profit margin. Luckily for Apple, Steve came back had the sense to buy Power Computing out before the toothpaste was irrevocably out of the tube. This action "de-commoditized&... the Mac OS again and saved Apple's bacon.