Thursday, March 29, 2007

Calls of Note Part 1

- Piper Jaffray was out yesterday afternoon with comments on Apple (NASDAQ:AAPL) after NPD released its monthly sales tracking data:

The firm notes that analysis of iPod NPD unit data for the months of Jan & Feb leads them to expect an iPod range of 10m-11m for the Mar-07 quarter (PJ model calls for 10.3m iPods and they believe Street consensus is ~10.9m). After the first month of March quarter data (January), they had been pointing to a range of 11m-12m units. Data for the month of February, however, fell slightly from January, for both Apple and the market overall, which is inconsistent with what they have seen in previous years from January to February.

While iPod units fell slightly m/m in February, this downtick was in line with the overall MP3 player market. iPod market share was unchanged from January to February at ~70%.

Piper says they believe investors should supplement these data points with other information. It is also important to note that international iPods are not captured in this data, international had a material positive impact on iPod units in the December quarter. Maintains Outperform and $124 tgt.

Notablecalls: The call hit around noon and looking at yesterday's chart one can certainly spot the damage it did to the stock price. Must say this is something I have been suspecting for quite some time (Please see the archives for further color). The upcoming iPhone is hurting iPod sales. Not to mention the fact almost everyone already has an iPod. I think some pretty sizable short positions were put on following Piper's call yesterday and while there will be some bounces, AAPL's a short here.


BobbyW said...

Everyone has an iPod? Have you done any research about how many iPods people own? It's more than one.

Not much meat in your story.

notablecalls said...

lol, thanks.

Tommo_UK said...

"Everyone who wants a mobile phone already has one. Nobody is going to buy phones any more." - do you ever hear that?
Do you hear: "everyone who wants a car already has one. Nobody is going to be cars any more?"
So why would you say it about iPods?

Mac sales ahead of estimates. Still want to short AAPL because they may have sold 500k-1m fewer iPods than someone thought (and still in-line with consensus, and above AAPL's own estimates)?

Apple Inc.-AAPL MAC sales tracking ahead of estimate through 2 months-OP@PACS
Thu Mar 29 08:45:21 2007 EDT
Pacific Crest notes that NPD data shows Mac sales growing 5x the market growth rate in February, ahead of their estimate. They note iPods sales are tracking in line with their Q2 estimate.

Another un-noteworthy AAPL call by Notable calls.

notablecalls said...

Funny you mentioned mobile phones in light of news we've been getting from MOT and NOK. Or cars in light of US automakers. But let's not draw parallels here.

I'm an AAPL fan (as you most obviously are) but I also aknowledge that all good things come to an end eventually. The iPod has been a massive growth driver for the co over the past years but let's face it - the growth is slowing. Especially now with the iPhone on its way. The problem here is that the market seems to have discounted most of the iPhone upside already. The Mac business is humming just fine, which is good. The new ultra-thin laptops will also be big sellers. I expected the iTV to be a seller but so far...not so hot. The reviews are not as good as one would expect.

And AAPL not a cheap stock anymore, trading 25 times F08 EPS.

All in all, I think there will be some s-t downside in AAPL.

Tommo_UK said...

Sorry, you're mistaken. Going by the sales chart position for the Apple TV in the three weeks following its launch, I estimate Apple sold about 150k on pre-orders. Judging by its position now, and other anecdotal evidence, I estimate they're selling about 2000/day. That's very strong, and way above estimates.
As for the iPhone, the Street hasn't actually discounted it at all from FY08. Its completely ignored it, which is why AAPL's FY078 estimates only add up to 17% anticipated earnigns growth, whereas if you factor in the 10M iPhones Apple say they expect to sell by the end of 2008, you cannot avoid AAPL delivering at least double, if not triple that growth. So the iPhone news isn't so much discounted after being baked in, as not even factoring into the equation at all yet.
As for the Mac, that continues to grow sales by about 30-40% YoY. That alone is good for 15-20% earnings growth for AAPL.

Below I'll show you what Mac sales growth for the current Q is likely to be, and you can see for yourself that your thesis that Mac sales aren't that important is misguided. I posted this in a blog just now:
Ok, so last month, Pacific Crest said overall Mac sales growth was tracking 100% higher than last year, and Mac notebooks sales growth 194% higher than last year. We put some of this down to the extra week this year.

This month, today, Pacific Crest say that Mac sales growth is tracking 5x PC sales growth for February.

AND, in another note from Morgan Stanley, we see that PC sales grew 27% in February, year-on-year.

If we put those two statistics together, we can conclude that Mac sales for February grew 108% higher than last year (over twice as much in other words)

So... we have Mac sales averaging about 1.45x higher in January 2007. And in February they are 2x higher than last year. Lets be charitable, and say that February was a freak month, and March sales will be just 1.3x March 2006 (we usually assume Mac sales growth of 30% YoY after all). On average then, over Q2 07, we can fairly accurately predict that Mac sales will be 58% higher than in Q2 06, if these sales growth figures are close to correct.

Q2 06 Mac sales were 1.11M. If you add 58% to that, you'd be adding 640k Macs to that, for a total (and record-beating) sales figure of 1.75M.

The market currently expects 1.4M. We have talked about 1.5M being more likely, with top-of-the-range pegged at 1.6M.

1.75M Macs? Wow.. you know what EPS that would bring, with margins as high as I'm expecting (33-34%)? About $1.20, assuming 11M iPods.

AAPL's guidance was for 56c. Street expectations are about 63c.

Each 1M iPods impact earnings by about 4c. Each 100k Macs about 4c. Have fun playing with the numbers

Ok so it might not be 1.74M, but you can't argue with the numbers... NPD usually under-estimates too (witness Q107 iPod sales, which they thought would be in the 16M range.. turned out to be 21M). I'm using their numbers, together with recorded PC sales growth for the period, and historic Mac sales numbers, to get this figure.

Tommo_UK said...

One more thing.. you said the Apple TV hasn't been well reviewed? I think you're being somewhat economical with the truth there... check these:

Apple TV Reviews Update

The Apple TV is focused on one goal: Bringing iTunes-based digital media stored on your computer to your TV. It achieves that goal quite well and simply with a device that is simple to set up and a delight to use. Apple TV is an excellent choice.


Apple TV effectively liberates your digital songs, videos and photos from your computer, allowing them moments of glory on your widescreen television.

PC Advisor

Apple has managed to rise above that kind of failure with its typical mantra: keep it simple and make it pretty. Setting up our $299 Apple TV was a breeze, and anyone who's used an iPod will be instantly familiar with its extravagantly attractive interface

Seattle Times

AppleTV will also force companies from Microsoft on down to make their living-room technology more elegant and easier to set up. But Apple's making life more complicated for those trying to figure out the best way to digify the home.

It was hard enough choosing among all the media-streaming, Internet-connecting TV gizmos promising to revolutionize our entertainment experience. Then along comes Steve Jobs with a potential category killer.

PC World

Apple TV Just Plain Works. It's the first media streaming device I could imagine recommending to a non-geek.,130095/printable.html#

PC Mag (4 out of 5 Stars)

Moving the functionality of the iPod onto widescreen TV is a great idea. The fact that it works, even better.,1895,2104966,00.asp


We've been testing Apple TV for the past 10 days or so, and our verdict is that it's a beautifully designed, easy-to-use product that should be very attractive to people with widescreen TV sets and lots of music, videos, and photos stored on computers. It is classic Apple: simple and elegant.

NY Times

Apple TV offers a gracious, delightful experience

E said...

MorganStanley said Apple's YoY mac sales grew 71 & 72 % in Jan & Feb, respectively. I really don't care how many iPods they sell, to be honest with you. The iPod is there to drive high-margin Mac sales, and that is exactly what it's doing. A boat load of large companies and government institutions are switching to Mac due to the solid unix OS, and the ability to run Windows. AAPL will be trading at $250 in 18 months. The 25x 2008 earnings should read 10x.