AAPL Takes a Breather
Apr 28, 2010 5:00 AM PT
The fervor kicked off by Apple's report last week of yet another record-breaking quarter seems to have cooled off slightly. Like many tech companies, AAPL shares took a wallop Tuesday, closing down 2.77 percent at US$262.04. The Dow declined by nearly 2 percent that day, a drop of well over 200 points.
It's difficult to say how much the overall market impacted Apple's loss, but it's possible some investors have begun thinking Apple's record-setting share prices were becoming a bit overheated, at least for the time being.
New product announcements typically mean rollercoaster rides for Apple shares, and the leak of what appeared to be a fourth-generation iPhone prototype last week only strengthened expectations that Apple will add to its iPhone lineup this summer. Elsewhere in the tech world, Apple rivals Research In Motion and Nokia both revealed new products this week.
Analysts Bull On
Investment analysts remain bullish about Apple and have raised their estimates in the wake of the company's record-breaking financial results. Continuing reports that iPads are hot items bolster their optimism.
For example, Brian Marshall, an analyst at Broadpoint Amtech, raised his price target for Apple share from $280 to $350 recently. That's a $50 hike, or almost 18 percent up.
Why the optimism? "The huge bump in earnings is driving the price target higher," Marshall told MacNewsWorld. "There's no change in the multiple."
The multiple refers to the price-to-earnings ratio. Marshall's figures imply a 50 percent premium for Apple stocks, which he thinks is appropriate. "If their growth slows, they would deserve a lower premium, but I don't see that happening any time soon," he said.
Many other analysts also raised price targets for Apple stocks after Cupertino released its financial earnings report last week.
Strong Demand Overseas
International sales will be key to Apple's growth in the coming months. "The most interesting part to the Apple story for 2010 in our view remains the international ramp of the iPhone," Broadpoint Amtech's Marshall wrote in a note to investors. He believes Apple has penetrated "only" about 1.5 percent of its international partners' approximately 525 million-strong subscriber base.
The iPhone's international sales could double within about two years, according to Marshall.
Statistics from China and Japan bear him out. Apple made about $1.3 billion in iPhone sales in China, Hong Kong and Taiwan over the past six months, Apple chief operating officer Tim Cook said during last week's earnings call.
That was up 200 percent year over year, Cook said. It's not clear how much of a role China sales played in this, as the iPhone only hit the Chinese market in October, and initial reports indicated sales were slow.
Still, $1.3 billion of iPhones works out to about 2.1 million devices, if you peg their sale price at $622 as Cook did.
In Japan, iPhone sales seem to be picking up, according to reports, although the numbers are not quite clear. If this is correct, however, it further boosts the device as a cash cow for Apple.
Overseas sales of iPads on the gray market are also reportedly booming, according to reports.
iPads Go to School
Reports surfaced last week that some iPads were having trouble connecting up to the networks of a few colleges. Despite this, DisplaySearch believes the iPad may become the e-reader of choice in universities.
"Knowing a thing or two about Apple and knowing they have MacBooks and iPhones in universities, this connectivity problem will be solved pretty quickly," John Jacobs, director of notebook market research at DisplaySearch, told MacNewsWorld. "It's just a bug fix for a new product.
However, another issue that may slow adoption of the iPad in universities may not be so easy to resolve. That is the possibility of eyestrain caused by reading for extended periods of time from a screen. "There's volumes of work on eyestrain and LCD screens going back for years," Jacobs said. "It has a lot to do with contrast issues.
Still, publishers are hopeful that the iPad will provide them with a new market. Several publishers have signed up to provide textbooks for the iPad, Jacobs pointed out.
iPad Sales Strong
Sales of iPads are booming -- at press time, Chitika Labs estimated they totaled almost 1.049 million.
Even the possibility that Apple will cut prices on the device could be good news. Apple Chief Financial Officer Peter Oppenheimer said the company will price the device aggressively, and this will be among the factors pushing down gross margins to 36 percent in the next quarter.
This past quarter, ending March, the company's gross margins stood at 41.7 percent.
Not to worry, Broadpoint Amtech's Marshall said. "Price cuts for the iPad, if there are any, could hurt its margins, but Apple will probably make up any shortfalls on higher volume sales," he pointed out.
Could RIM Give Apple a Black Eye?
On Monday, RIM announced a feature that provides voice over WiFi capability to its mobile voice system technology that could prove interesting to enterprise users.
This might hurt Apple in its efforts to penetrate the enterprise market.
The BlackBerry's by far the leading platform for a lot of enterprises, Ramon T. Llamas, a senior research analyst at IDC, told MacNewsWorld. Giving corporations voice over WiFi capabilities dovetails with the move in enterprises toward unified communications, he said.
"With unified communications, enterprises want staff to be connected at all times," Llamas explained. "If they can save some money at the same time by using voice over WiFi, that's a major coup for RIM."