First, Apple (AAPL) as we discussed yesterday in the blog - comments from N/C blog:
- a sacrifice that may pay dividends if it boosts holiday sales and paves the way for a successful European debut.
- Goldman Sachs (GS) 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.
- 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.
- 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.
- Piper Jaffray reits their Outperform rating on checks showing growing consumer interest in music-enabled and data-oriented phones that should drive continued growth in NAND flash demand.
- Further, checks noted solid sell-through of the iPhone, which they believe was the top-selling smartphone at AT&T and contributed to rising AT&T store traffic. Firm believes success of the iPhone will encourage other handset manufacturers to launch products with increased embedded NAND densities.
- the trajectory of growing secular demand for NAND flash and SanDisk's plans to lower production costs remains intact.
- Citigroup is very positive on SNDK saying the pullback in spot prices does not preclude an upward move in SNDK near or intermediate term. Viewing Street 4Q07E and 2008E EPS potentially 40% and 17% too low, the firm expects rising EPS to propel the shares higher in the months ahead.
- the 2H07 and 2008 EPS upside they can see to Street estimates (royalty revenues, product gross margins; CIR ests increased on Aug 9) will become better appreciated, fueling a handsome move in the shares.
- Catalysts ahead include new product potential for industry (video, handset, computing), SNDK-specific product drivers for C2008 (iNAND and SSD's) and benign 1H08 seasonality before a tight 2H08.
Takeaways:
On Apple (AAPL) I repeat the Gillette model I mentioned yesterday. If Apple were ONLY selling hardware and not getting subscription revenue I would view the steep price cut as a major negative. But there is a means to this end - get this product into people's hands, and start collecting that revenue stream from the subscriptions - remember AT&T is doing the servicing and traditional back office operations needed for the subscriptions so just imagine what the margins will be for Apple on the the service side - I'd have to think sky high. I've been reading sacrificing price for volume is a losing strategy on other sites - I agree if again, Apple were a hardware play only in the phone business. They are not. My main concern with the iPhone has been the lack of hard keyboard; for a nation of "texters" (is that a word?) it seems like it could be a drawback.
Is the stock down today or tomorrow or next week? Who knows, and aside from short term trading positions it is pretty moot (although I do hope for a fall to $130 or below to add to my smallish position in the fund). In fact I am more interested in Amazon's foray into digital music/content store as a potential threat than $200 price cut in iPhone.
p.s. iPod Flash? Looks like a winner to me.
On Sandisk (SNDK), the analysts pretty much concur with my thoughts and that word I love, "secular", is popping up in their reporting now. We are moving to a NAND flash world and Samsung and Sandisk (SNDK) are the beneficiaries - Samsung is a conglomerate so hard to get a direct benefit in the stock price, while Sandisk is a pure play. Again, this is still going to be a cyclical business so buying this stock and then forgetting about it for 3-5 years - I don't agree with the strategy but for the next 9-12 months we should have an interesting play here, and then re-assess. I'd like a pullback to $53 or below to continue building a position in Sandisk.
Long Apple and Sandisk in fund; no personal positions.
