The Mac Observer has taken the time to discuss Appleis Wednesday earnings announcement with Shaw Wu of American Technology Research and Jupiter Mediais Joe Wilcox. While the company reached new heights with US$3.52 billion in sales and $320 million profit during the past quarter, Mr. Wu has maintained his Hold rating on the stock, citing a currently fair share price and some areas of concern. Meanwhile, Mr. Wilcox was more upbeat, noting that while the second quarter of the calendar year is typically a slow one for many companies, Apple has continued its meteoric growth.
"For Apple to have so many firsts -- its best quarter ever, more iPods sold than ever, more notebooks sold than ever -- is pretty impressive," Mr. Wilcox said. Asked about Appleis laptop sales continuing to rise despite the lack of a G5 PowerBook, he responded: "I have a G4 PowerBook and performance seems fine. There are some apps where you could use a G5, but things like additional RAM can also help. Apple can optimize system performance in ways other than putting in a new processor."
However, Apple also released a forecast of $3.5 billion in revenue and $0.32 EPS (earnings per share) for the current quarter, below analystsi expectations of $3.6 billion and $0.33, which concerned Mr. Wu. "Apple is always conservative about forecasts," he explained, "but this is the first time in five quarters that their guidance has been below the consensus forecast."
A Look at the Mac Numbers
He agreed that concern over short-term Mac sales -- which some analysts have speculated could be affected by consumers holding off on purchases in light of the switch to Intel processors -- could play a part in that forecast. Mr. Wilcox, however, said: "Iid be surprised if thereis a short-term slowdown, given where things are. Of course, processors might matter to old-time users."
Digging deeper into the numbers behind the 1.182 million Macs sold this past quarter, Mr. Wu said that the ASP (average selling price) came to $1,324, lower than the almost $1,400 logged during the previous quarter. "That tells me thereis a shift toward lower-cost Macs, like iMac and perhaps iBook," he said. "I think the Mac mini may be a larger part of the mix now, but itis still below what it could do [in sales]."
Appleis 18% increase in inventory this past quarter also alarmed Mr. Wu. "My biggest concern there is the inventory sitting in the channel right now," he explained.
Like Mr. Wilcox, he did agree that the halo effect caused by the iPodis success seems to be gaining traction, although he felt that "1 million units isnit that significant. Dell does, what, 15-20 million units per quarter? These are easy comparisons because Apple didnit do that well a year ago. I think the halo effect will be more significant if they can hit 2 million units per quarter."
The iPod Becomes an Icon
With over 6 million iPods shipped last quarter, Mr. Wilcox said that the MP3 player has become a cultural icon. "The real test for the iPod was the first calendar quarter [of 2005]," he explained. "That would determine whether it died as a fad or became iconic, and obviously it was the latter.
"Nothingis been able to chink the armor," he continued. "Part of that is the brand: Appleis done a good job of creating cool allure. Also, the music store has helped. You donit have to buy an iPod for iTunes, but the synchronicity is there. Finally, it worked right from version one, both in terms of the user interface and synchronization with the computer. Microsoft still hasnit solved the synchronization problem."
Apple recently brought color LCD screens to all the full-size iPods and consolidated the line to 20GB and 60GB versions, along with the U2 Special Edition model. Mr. Wilcox noted that "20GB is still the sweet spot, which Apple all but confirmed by consolidating the line. I think 20GB is more than enough for most people, but those who want more storage really want a lot more room and theyire willing to pay for it."
iPod ASP and HP
Mr. Wu calculated a $179 ASP for the iPod, which he used to determine that the overall sales broke down to about 3 million iPod shuffles and 3.2 million iPods and iPod minis sold during the quarter. He expressed concern over Hewlett-Packardis contribution to those numbers, noting that the company "doesnit have a strong track record of selling iPods. They sell them at places like Radio Shack, where they just sit there as inventory. People donit go to Radio Shack or Wal-Mart to buy an iPod."
He also said that HPis iPod numbers have been sporadic the past four quarters, citing 121,000 units sold in the September 2004 quarter, 321,000 sold during the December 2004 quarter, 159,000 sold during the March 2005 quarter and 486,000 sold this past quarter. "Theyire all over the place," he said. "Who knows how theyill do next quarter? Iim impressed with iPod sales growth, but Iim not as impressed when you take out HPis numbers."
Mr. Wu has a $42 12-month target price on Appleis shares. The companyis stock was at $40.93 as of 2:30 PM EST on Thursday, up 6.73% for the day. He said that such exuberance is atypical for a company that issues financial guidance below the consensus estimates, and he thinks some investors are overlooking the issues he cited.