Hedged In

A Worm in the Apple?

This article makes only one valid point: that a magazine cover MIGHT signal a top in sentiment. Otherwise, it brings little evidence for AAPL investors to be concerned.

But there is evidence elsewhere:
- Windows 7 is a far better product than Windows Vista, so there's more real competition in the laptop market.
- Google is now a serious competitor to Apple with its Android mobile OS.
- There's more competition in the smartphone market due to Android. Motorola, HTC, and soon Dell will all have Android handsets offered via US carriers.
- There's significant pricing pressure in the smartphone market - Apple would never be able to get the deal now that it got with AT&T, and RIMM, PALM, MOT and NOK will battle desperately for smartphone market share because their stocks depend on it.
- Apple's tablet seems to have been delayed to H2 2010.

None of these factors suggest that Apple isn't a great company. But great companies and great stocks are different things. The signs are that AAPL the stock might perform far less well in 2010 than 2009.

Apple: The Real News Is What Wasn't Announced

Excellent article. One comment. The article said:

"... little things like new colors and small tweaks here and there will be enough to bring the kids - and parents - into the stores to take a look this holiday season."

But that might not be enough to entice people to upgrade their iPods. And with high market saturation, Apple needs to offer a compelling reason to upgrade.

The Mac vs. PC Debate Was Never Clearer

The problem with this article is that it ignores a critical datapoint that Apple mentioned on its own conference call: seekingalpha.com/insta...

Apple F3Q09 (Qtr End 6/27/09) Earnings Call Transcript

The latest NPD data shows that Apple has a remarkable 91% market share for machines over $1k -- seekingalpha.com/news/...

In this call, Apple revealed that the strongest demand was for its cheapest MacBook Pro, and that it is sold out. Here's the key quote:

=====
Gene Munster - Piper Jaffray

Good afternoon and congratulations. Two brief questions -- first on the Mac side judging by the product lead times, the demand for the new lower priced Macbook Pro caught you off guard. How do you see that demand trending through the September quarter?

Timothy D. Cook

In terms of the Macbook Pro, there are a couple of models that are somewhat constrained today but I believe we will get beyond this in the next few weeks. We don’t feel that the constraint had a material effect on last quarter and we factored our view of supply into the guidance that Peter shared with you.
=====

The key issue for Apple's laptop business going forward is pricing. Currently, users are willing to pay over $1k to avoid having to use Windows or any other alternative to OS-X. But as soon as cheaper Macs become available, they buy them. Or, as soon as Windows becomes acceptable, the more price sensitive buyers will abandon Apple. And there are some early data points that (MSFT) might have fixed the consumer loathing of Windows 7: seekingalpha.com/insta...

Mac Pricing: Value Is in the Eye of the Buyer

Yup, I'm writing this on a MacBook Pro. Don't like the metal case.

On Jun 09 12:46 PM Channon wrote:

> Hedged In:
> Have you ever used the aluminum laptops? They are far superior to
> plastic. The case and size is the only reason I'm using a 4-year-old
> laptop. That is, the lack of availability of a metal-case small-format
> laptop until recently. And, likely the only reason my laptop has
> survived for 4 years. I think you are in very small company if you
> prefer a plastic case to AAPL's new unibody aluminum case. Premium
> pricing, surely an arguable position (until you go try to build a
> comparable Dell), but plastic over metal???

Mac Pricing: Value Is in the Eye of the Buyer

Thought experiment: Imagine that PC vendors (eg. Dell and HP) could offer their hardware with Apple's OS for some premium over the price of the same machines with Windows.

Now ask yourself these questions:

1. How much more would you be prepared to pay for OS X versus Windows?
2. How much would you care that the machine isn't Apple's hardware?

My personal preference: I'd jump at that, as I'd like the option of much cheaper hardware (yes, Macs are too expensive), and I'd prefer plastic to the metal casing of MacBooks. And I'd be prepared to pay a significant premium for OS X over Windows (I'm a diehard Mac user).

Conclusion: Apple is forcing people like me to pay more than I want to by bundling its OS with its hardware. So yes, it's laptops are too expensive.

Netbook Sales Cannibalizing PC Revenues

Anecdotal data point: I was in a Best Buy in NYC yesterday, and most of the people looking at computers were interested in the lowest price netbooks. The model that was getting most attention in Best Buy was their cheapest model on show: an MSI Wind netbook with a 10" screen, 1GB of RAM, a 160GB hard drive and a 3 cell battery (less good than a 6 cell) for $310. You can see it on Amazon here: www.amazon.com/gp/sear...

Apple's Current Expectations vs. Its 52-Week High

Good analysis -- thank you. (Is the tool available anywhere on the internet?)

Most of the comments seemed to miss the point that you were just solving for future growth based on current stock price, taking other variables as fixed.

However, taking EBITDA as fixed is highly risky. Apple's margins are probably at an all time high as Windows weakness allows Apple to charge a premium for its computers and the iPhone is the only show in town.

But over the next year, we'll see netbooks take serious market share and drive down laptop pricing (and the OS will matter less as more moves into the cloud), and Android phones will start to compete with the iPhone.

5 Things Apple Could Be Doing with Their New Touch Screens

The Digitimes headline -- "Wintek to supply touch panels for Apple netbook, says paper" -- was misleading (or just great link bait).

It's unlikely that Apple is planning a touchscreen netbook for two reasons:
1) the touchscreen would be redundant with a full sized keyboard
2) a touchscreen netoook wouldn't be able to compete on price with the $350 netbooks from Acer and Asus.

Netbook Sales Cannibalizing PC Revenues

It's helpful to see someone try to quantify the impact of netbooks. I'm not sure about the assertion that netbooks were 9% of the laptop market in 2008, but it's probably possible they could reach 20% of the laptop market in 2009.

Are they 50% below the average cost of a laptop? Currently, netbooks are selling at $350, so if the average laptop price is $700, that's about right.

Why Sprint Needs the Palm Pre to Succeed

There's a useful table of other iPhone competitors here: apple20.blogs.fortune....

Apple Inc. F1Q09 (Qtr End 12/27/08) Earnings Call Transcript

Note Tim Cook's comment about netbooks on Apple's call: "We are watching the space, as you know about 3% of the industry or the PC industry last year was in this netbook kind of category. And so, it's a category we watch. We've got some ideas here. But, right now we think the products there are inferior and will not provide an experience to customers that they're happy with."

A data point: Acer just raised the spec of its Aspire One netbook to 160Gb hard drive and 6 cell battery (which gives 6 hours run time), while also making improvements to the screen quality and usability of the machine. Critically, Acer mainteined the price at $350. A machine with these specs previously cost about $100 more (eg. Samsung's netbook has the same specs and costs $450 on Amazon.)

The Aspire One is now Amazon's best selling notebook: tinyurl.com/dzkxts . In other words, the market is telling us that many customers don't view a $350 netbook as "inferior".

Apple lost market share in January due to the fact that it's notebooks are expensive: seekingalpha.com/artic...

The key question for investors is whether Apple will launch a netbook soon enough to maintain its market share, and what would be the impact of that (a) on Apple's revenue (remembering that netbooks have far lower ASPs than Apple's notebooks) and (b) on sales of the MacBook Air.

Apple: January Mac, iPod Sales Down

The key points, from the NPD January data:
-- Mac units were down 6%
-- Mac revenue was down 11%
-- Customers have been migrating to Apple's cheapest Mac notebook, priced at $999
-- The average price of Apple computers stood at $1,480 for its laptops and $1,500 for desktops in January, more than double the price of Windows machines
-- Unit sales of all PCs rose 13% in January, while total revenue fell 3.2%
-- As a result, Apple's PC market share fell to 13.7% from 16.4% a year earlier
-- Separately, iPod units were down 14%

The Mac data is more important than the 14% drop in iPod units, because (a) Macs have much higher ASPs than iPods and therefore account for more of Apple's revenue, and (b) it's likely that some users are trading up from iPods to iPhones, so the decline in iPod revenue doesn't tell you enough.

The NPD data on Macs is indeed worrying for Apple investors. The fact that revenue declined faster than units (ie. that ASPs declined sharply) confirms that in a weak economy consumers are less willing to buy premium products, even if (as in Apple's case) the products are better.

More concerning than the January number is the outlook for the rest of the year. I've been tracking the netbook market carefully, and it's becoming clear that netbooks will be enormously popular and will exert severe deflationary pressure on the laptop market. The impact on Apple could be meaningful, particularly because Apple doesn't have a low priced netbook product.

ChangeWave research recently reported "just 4% of [survey] respondents expect to buy a desktop PC in the next 90 days, while 6% expect to buy a laptop. Of those who do plan to buy a PC, 18% say they will buy a netbook, up from 14% in the January edition of the survey." (seekingalpha.com/artic...) Acer's chairman said in a recent interview that ""We found out that our American competitors are not aggressive in [the netbook] segment, but we think this segment is very big."

I've been tracking newsflow on the netbook market carefully; you can read what's going on here: seekingalpha.com/user/...

Full disclosure: no position (yet) in AAPL, HPQ, INTC or the other stocks impacted.

Apple Inc. F1Q09 (Qtr End 12/27/08) Earnings Call Transcript

iPhone stats (Q4) from the transcript:

- 4.4 million handsets sold
- cumulative total 13.7MM, >> 10MM goal
- Recognized revenue from iPhone handset sales, accessory sales, and carrier payments was $1.25 billion compared to $241 million yr ago
- The sales value of iPhones sold was over $2.6 billion.
- According to AdMob's December 2008 Mobile Metrics Report, iPhone accounted for 32% of worldwide smartphone sales and 48% of US smartphone sales in the month of December, more than RIM, Windows, and Palm combined.

Anything missing?

Apple Inc. F1Q09 (Qtr End 12/27/08) Earnings Call Transcript

"according to AdMob's December 2008 Mobile Metrics Report, iPhone accounted for 32% of worldwide smartphone ad request in 48% of US smartphone ad request in the month of December, more than RIM, Windows, and Palm combined."

Perhaps should be:
"according to AdMob's December 2008 Mobile Metrics Report, iPhone accounted for 32% of worldwide smartphone SALES AND 48% of US smartphone SALES in the month of December, more than RIM, Windows, and Palm combined."