ATR: iPod Touch Cuts Not Enough, MacBook Air Sales Slowing

by , 12:25 PM EDT, September 10th, 2008

American Technology Research analyst Shaw Wu, in a note to investors Wednesday, said that while the new iPods announced on Tuesday were pretty much as expected, the current price of Apple shares (AAPL) remains a buying opportunity for long-term investors. In addition, the price cuts for the iPod touch may not have been enough and MacBook Air sales appear to be slowing.

In a report, obtained by TMO, Mr. Wu listed four summary points:

• The new iPod nano is impressive, the price cuts were positive, and this iPod should be an attractive holiday item.
• The price cut for the iPod touch may not be enough given the tough macroeconomic conditions and the relative price of the [subsidized] iPhone 3G.
• Only minor changes were made to the iPod Classic and shuffle.
• No material change in build plans seen based on supply checks. The estimate for iPod sales is 11 million in September quarter and 24 million for December quarter.

Mr. Wu wrote: "While AAPL shares will likely remain volatile given market sentiment, we view current levels as a buying opportunity for longer-term investors. AAPL remains one of the best positioned large-cap technology companies. We see upside to $220 based on 32.5x our CY09 EPS of $6.73." He wrote that the current macroeconomic conditions will likely not affect the high-end consumer market in the near- to medium-term -- though commodity inflation could put pressure on Apple's margins.

The ATR analyst explained that with lower NAND Flash memory pricing and other factors, Apple should be able to absorb the lower iPod prices without an effect on Gross Margins. In addition, he sees the NBC deal as a very positive indicator of Apple's market power and ability to negotiate deals.

Regarding MacBooks, Mr. Wu continues to believe that both the MB and MBP are due for a refresh with more radical designs. He also noted that build plans for the MacBook Air have slowed from previous, more robust levels as customers have opted for MacBook and MacBook Pro models instead.

Mr. Wu maintained his Buy rating with a 6-12 month target price of US$220. On Wednesday morning, AAPl was trading at US$153.27, up $1.59 for the day.

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