Several firms comment on Apple (NASDAQ:AAPL) after the co announced a steep price cut on the iPhone, just two months after launch, a sacrifice that may pay dividends if it boosts holiday sales and paves the way for a successful European debut. Chief Executive Steve Jobs announced on Wednesday a surprisingly steep $200 price cut for the 8-gigabyte iPhone, which had made a high-profile U.S. debut at the end of June at $599. Jobs also said Apple would scrap the 4-gigabyte model, which had cost $499:
- Goldman Sachs notes the iPhone price cut came sooner and deeper than they expected. In short, it reduces EPS by $0.10 in FY2008 (ending Sept. 2008). That said, the firm is not reducing their estimates because, as they have indicated a number of times, they have long believed that their cannibalization assumptions for higher end iPods from iPhone have been too high. These two should roughly offset each other, leaving Mac to provide upside.
Apple shares will give back some of their 12% run up into yesterday's event without another catalyst before the release of earnings and the next version of its operating system (Mac OS X Leopard) in mid to late October. However, as Apple's product cycle story unfolds, the firm continues to recommend that investors buy Apple shares, especially on company-specific or broader market pullbacks. GSCO is maintaining estimates and price target.
- RBC Capital notes that while the lower price itself was not unexpected, the speed of the cut -- coming 68 days into launch -- was a surprise; given recent checks (this week) suggested sustained sales momentum. It also risks upsetting early iPhone purchasers. After deciding to cut price, Apple likely moved quickly to avoid alienating customers further and to maintain sales momentum.
RBC believes this decision will prove positive in time, for three reasons: 1) it broadens iPhone's addressable market, after the initial surge (RBC's Technology Adopter Panel data suggests iPhone demand wanes at $600, rebounds at $399); 2) it strengthens iPhone's competitive position and lessens a major sales objection; 3) it may drive an upgrade cycle into the holiday season, particularly with users holding off for lower pricing.
Firm's sensitivity analysis suggests the iPhone price cut has a nominal (1%) impact on F07/F08 EPS and revenues. They maintain their F07/F08 estimates and outlook for 13.4M iPhones end CY08. Reiterates Outperform Thesis.
- Banc of America believew the 8GB price reduction signals 1) unit sales are not living up to heightened original expectations and the ASP is now more in-line with other smart phones 2) possible positioning of its portfolio for a C4Q07 global (i.e. including the U.S.) launch of a 3G iPhone (vs. 2.5G now). Net, a lower than expected blended ASP likely in F2008 and F2009.
They are reducing F2008/F2009 EPS estimates to $4.33/$5.50 from $4.35/$5.57, and cash EPS estimates go to $4.97/$6.58 from $5.10/$6.70. Firm's target price is cut to $158 from $160. Maintains Buy.
Notablecalls: I don't know what to make of this. Mixed emotions.
"I think it's clearly a sign that the velocity of the sales volume has probably dropped to a level they're not comfortable with," said Gartner analyst Van Baker.
Gene Munster of Piper Jaffray supported Apple's price strategy. "Apple is investing iPhone profit dollars over the next few quarters in order to be a legitimate player in the phone market"
Both comments make sense here. The stock has been hovering near recent highs and now we have some firms taking down their ests. Investors usually don't like to buy stocks in co's that are in the process of investing their hard-earned profit dollars back into the business.
The most logical step here would be to short the stock, right? I wouldn't overstay my welcome, though as I suspect some sizable short positions were initiated yesterday in anticipation of estimate cuts (that do not look too deep).
My ultra s-t view? The stock gets hit and then rebounds.
- Goldman Sachs notes the iPhone price cut came sooner and deeper than they expected. In short, it reduces EPS by $0.10 in FY2008 (ending Sept. 2008). That said, the firm is not reducing their estimates because, as they have indicated a number of times, they have long believed that their cannibalization assumptions for higher end iPods from iPhone have been too high. These two should roughly offset each other, leaving Mac to provide upside.
Apple shares will give back some of their 12% run up into yesterday's event without another catalyst before the release of earnings and the next version of its operating system (Mac OS X Leopard) in mid to late October. However, as Apple's product cycle story unfolds, the firm continues to recommend that investors buy Apple shares, especially on company-specific or broader market pullbacks. GSCO is maintaining estimates and price target.
- RBC Capital notes that while the lower price itself was not unexpected, the speed of the cut -- coming 68 days into launch -- was a surprise; given recent checks (this week) suggested sustained sales momentum. It also risks upsetting early iPhone purchasers. After deciding to cut price, Apple likely moved quickly to avoid alienating customers further and to maintain sales momentum.
RBC believes this decision will prove positive in time, for three reasons: 1) it broadens iPhone's addressable market, after the initial surge (RBC's Technology Adopter Panel data suggests iPhone demand wanes at $600, rebounds at $399); 2) it strengthens iPhone's competitive position and lessens a major sales objection; 3) it may drive an upgrade cycle into the holiday season, particularly with users holding off for lower pricing.
Firm's sensitivity analysis suggests the iPhone price cut has a nominal (1%) impact on F07/F08 EPS and revenues. They maintain their F07/F08 estimates and outlook for 13.4M iPhones end CY08. Reiterates Outperform Thesis.
- Banc of America believew the 8GB price reduction signals 1) unit sales are not living up to heightened original expectations and the ASP is now more in-line with other smart phones 2) possible positioning of its portfolio for a C4Q07 global (i.e. including the U.S.) launch of a 3G iPhone (vs. 2.5G now). Net, a lower than expected blended ASP likely in F2008 and F2009.
They are reducing F2008/F2009 EPS estimates to $4.33/$5.50 from $4.35/$5.57, and cash EPS estimates go to $4.97/$6.58 from $5.10/$6.70. Firm's target price is cut to $158 from $160. Maintains Buy.
Notablecalls: I don't know what to make of this. Mixed emotions.
"I think it's clearly a sign that the velocity of the sales volume has probably dropped to a level they're not comfortable with," said Gartner analyst Van Baker.
Gene Munster of Piper Jaffray supported Apple's price strategy. "Apple is investing iPhone profit dollars over the next few quarters in order to be a legitimate player in the phone market"
Both comments make sense here. The stock has been hovering near recent highs and now we have some firms taking down their ests. Investors usually don't like to buy stocks in co's that are in the process of investing their hard-earned profit dollars back into the business.
The most logical step here would be to short the stock, right? I wouldn't overstay my welcome, though as I suspect some sizable short positions were initiated yesterday in anticipation of estimate cuts (that do not look too deep).
My ultra s-t view? The stock gets hit and then rebounds.
iPhone app ideas are a dime a dozen. Let's face it, everyone with an iPhone has thought of a killer idea at some point or another.
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