G5 Worries Making Analysts Less Than Bullish On AAPL

by , 10:00 AM EST, March 17th, 2004

Apple's stock price is the highest it has been since the tech bust of 1999. Yesterday, AAPL closed at 25.82, down by 0.63 (-2.38%) on strong volume of 10,812,204 shares trading hands. CBS Marketwatch, however, is reporting that some Wall Street analysts are less than bullish on Apple, largely due to worries about what they consider disappointing G5 sales. The media outlet quotes two analysts, Keith Bachman of Banc of America Securities, and long time Apple watcher Steve Fortuna of Prudential Equity Group, as saying that G5 worries are more important than the success of the iPod. From CBS Marketwatch:

We believe [G5 sales are] the single-best gauge of the growth potential of Apple," [Keith] Bachman said in a research note. "The G5 is more important that the iPod in terms of [profit] impact."

Bachman estimated that for every 5 percent change in G5 sales, Apple sees a 4-cents-a-share effect on its bottom line. But a move of the same magnitude in sales of the popular iPod player affects Apple's earnings by just 2 cents a share, he says.

While Apple's iPod sales remain strong -- the company sold 730,000 iPods in its last quarter and had pre-release orders for 100,000 iPod mini music players -- Bachman said the company's G5 sales could turn out to be disappointing for the second quarter in a row.

[...]

[Steve] Fortuna wrote in a research report that recent Apple investors have been "lured by the success of the iPod and iTunes" and that their enthusiasm has driven the stock's recent performance.

"The music and retail initiatives have certainly been a positive in terms of driving increased traffic and some switchers to the brand," Fortuna said. "But we remain cautious about the current environment as we tread through the seasonally weaker first half [of the year]."

There's more information in the full article, which we recommend as an interesting read.

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The Mac Observer Spin:

Lots of analysts don't get Apple, but Steve Fortuna is not such an analyst. We don't know much about Mr. Bachman, but we are inclined to agree with his comments about the G5 and the iPod. Certainly the iPod is having a positive impact on Apple far beyond its direct financial contribution; for the time being, however, the Mac platform is Apple's bread and butter, especially its high-end G5. We have been surprised that Apple hasn't been able to sell more G5s, particularly since orders for the units were so strong in the beginning, and lots of pent up demand from Apple's core creative customers waiting to be filled.

Indeed, this editor made a Bet that this combination of factors, plus others, would drive market share for Apple higher, but that hasn't been the case.

To play armchair CEO for a moment, what would you do to boost sales of the G5? The product has certainly gotten a lot of press since its introduction, especially when Virginia Tech's Big Mac project was getting so much attention, so it's not as if no one knows about it. Then again, Apple's no-substance marketing hasn't exactly hammered home the message that the G5 can help you (the buyer) get more done.

Should Apple perhaps lower the price? With R&D on the G5 hopefully near to being paid for (though possibly not), and perhaps with new cost-saving developments since the G5 was introduced, Apple might consider lowering the price of the product line. Of course, one has to balance margins, as it is very, very important that Apple make a healthy profit on each Mac it sells, especially at the high end, so that's always a fine line to walk.

What would you do to boost sales?

CBS Marketwatch Article