Tuesday, August 26, 2008
Summer vacations, economic woes, rising oil prices. Price of petroleum and a generally growing uncertainty about the health of the economy seem to have virtually no effect on Apple yet. As we approach the end of Apple’s fourth quarter and fiscal year (September 30), analysts are predicting record Mac and iPhone sales that significantly exceed previous Wall Street estimates. The current consensus is that Apple could sell 5 million iPhone 3Gs and 3 million Macs marks during the quarter.
It appears that Apple has settled in a very comfortable and profitable position. The company has grown from a niche player into what seems to be an unstoppable gorilla. Industry-giants like Microsoft now consider Apple as one of its key rivals, trying to figure out how to compete with Apple’s unique vertical product integration. Apple’s portfolio is probably the most leveled and balanced in the industry, while its above-$1000 target market and 30% or higher profit margins are the envy of its competitors.
There is a multitude of reasons behind the success and the Honeymoon period of the Mac shows no signs of an ending in the near future. The Intel switch, the Leopard release, price drops, and refreshes across product lines were catalysts for Mac market share increase, aided by growing customer dissatisfaction with Vista and Microsoft. It seems that more Windows PC users are downgrading to Windows XP or switching to Mac. The latest market data from IDC and Gartner rank Apple as the third-largest computer vendor in the U.S., following HP and Dell. On Wall Street, Apple’s market cap is close to Google’s market cap.
Student Monitor polled 1200 participants and found that 84% full-time four-year undergraduates in the U.S. plan to buy a notebook in the next 12 months - 43% are aiming for a Mac, nearly twice the value of Apple’s closet competition (Dell: 22%, Sony: 8%, HP: 6%, Gateway: 3%). Three years ago, 46% planned on buying Dell laptop and only 17% a Mac. "Apple computers seem to have a cachet with college students that other brands of computer don’t have and this cachet has been re-enforced by students’ adoption of iTunes, iPhone, and iPod," said Eric Weil, managing partner at Student Monitor.
RBC analyst Mike Abramsky expects a 44% annual growth in Mac sales and 22% growth on a sequential basis. He estimated that Apple will sell 3.04 million Macs during the current quarter, up from 2.5 million Macs sold in the June quarter. His own research covering of 4400 respondents revealed that 34% plan to buy a Mac notebook within the next 90 days. Another 30% plan to buy a Mac desktop. Abramsky forecasted a global rise of Apple PC shipments to hit a market share of 4.2% in 2009, up from 2.9% in 2007. He believes that every 0.25 points of market share gain should equal about $1 billion in incremental revenue and $0.15 in additional Earnings per share .
The iPhone 3G is exceeding Wall Street expectations by an even larger margin than the Mac. Cote Collaborative analyst Michael Cote told CNN that the iPhone 3G sold 3 million units during the first weeks after launch. Net Applications’ July browser market survey revealed an almost twofold surge in iPhone browsing market share following the iPhone 3G launch, jumping from 0.16% to a 0.45% peak on August 16. "The release of the iPhone 3G has brought large gains in web browsing share," Net Applications said. "Prior to the launch iPhone usage share had leveled off, but has since resumed its upward trend."
These gains prompted analysts to lift their iPhone 3G sales estimates to 5 million units for the quarter, well above the previous Wall Street estimate of 3 -4 million units. Assuming that the iPhone browser share growth trend continues to rise, analyst Andy Hargreaves increased his previous estimate of 3.5 million units by an additional 1.5 million units. "iPhone’s share of Internet browsing is now four times that of Windows Mobile and nearly 40% of Linux’ share," Hargreaves said. "Over the long term, we expect iPhone’s advantages to drive strong hardware revenue growth, while providing new opportunities to monetize the user base through value-added services."
Piper Jaffray’s Gene Munster now models a minimum of 4.47 million iPhone units for the quarter, up from 1.12 million a year ago. Munster calculated that Apple sells an average of 95 iPhone 3Gs per day at each of its 188 Apple retail stores (21 iPhones per day in August 2007). "We believe Apple will sell 1.78 million units at its U.S. retail stores, and 0.90 million phones at U.S. AT&T locations," he said, noting the assumption that each of the 2200 AT&T stores has a sell through of 5 phones per day between the July 11 launch and the end of the September quarter.
Business Week reported that Apple’s daily iPhone 3G output is about 150,000 units, but hints at a significant ramp-up in manufacturing due to today’s expansion in 20 new countries. According to a "person familiar with the company’s plans," Apple plans to manufacture 40 to 45 million units within the next 12 months. Today’s iPhone expansion into 20 new territories increases the international iPhone footprint to 42 countries, with 70 countries planned by the end of the year.
Latest reports indicate that Russia and China may also be added to the list soon. Reuters reported that Apple has cut a deal with Mobile TeleSystems (MTS) to carry the iPhone 3G in Russia and other reports suggest that the company is close to finalizing a deal in China. Both countries are home to the massive iPhone grey market. iPhone sales in Russia and China could greatly contribute to the bottom line over time: Jack Gold, an analyst at J. Gold Associates, labeled Apple’s attack on Russia as "more symbolic than anything" - to cut grey market. "Russia is clearly one of the more dynamic and expanding markets worldwide," he said in an email interview with TG Daily.
However, some industry watchers claim that Apple is spreading itself thin, pointing to the MobileMe blunder, 3G issues and the iTunes activation meltdown as examples of Apple’s inability to address the fast growth. The demand is apparently taking Apple’s Taiwanese manufacturing partner Foxconn Electronics to its limits, which is believed to already have resulted in an unknown number of faulty iPhone 3Gs with various 3G issues.
But at least so far, Apple seems to remain untouchable.
By: DocMemory
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