Only a decade ago,Steve Jobs must have been wondering what he was doing back at Apple Inc. (NASDAQ:AAPL) HQ. Fired in 1985 after a series of disagreements with the company’s board of directors, he was asked back in 1997 to help lead the company out of its then mess.
The company, which had launched the first commercially successful personal computer in 1984, was now being pounded on all sides by its rivals. While Apple had tried to develop its own software and hardware, everyone else had decided on splitting the two. Microsoft did the computer programs and applications, companies like Intel and Dell the computers. Apple looked like history. When asked in 1997 what Steve Jobs should do to the company, Dell CEO Michael S. Dell said ‘I’d shut it down and give the money back to the shareholders.”
How things have changed. While Dell looks to slash 10% of its global workforce, Apple is gearing up for the unveiling of its iPhone, the all in one phone, Blackberry and iPod that’s got public fawning all over the company. 6 months since its unveiling to the public, Apple stock has rocketed 42%. And if its launch on June 29th goes to plan, analysts say it could perform similar feats. “There’s so much expectation, I don’t think there’s ever been as many eyes on Apple as there is now,” says James Holland of T3, the gadget magazine.
So what does it do? According to CEO Steve Jobs it’s a “magical device” which will “revolutionise the (telecommunications) industry.” Users will be able to download films and music onto the device which, as well as its use as a phone, will serve as a Blackberry and, depending in your preference, a 4gig or 8gig iPod.
It needs to have lots of applications, because at $499-$599, it won’t be coming cheap. Will this act as a price barrier? “People have paid that much for iPods in the past, and they do about a third of what this does”, says James Holland of T3, the gadget magazine.
Credit Suisse analyst Robert Semple agrees. ‘Consumers have become accustomed to getting more and paying less,’ he said in a recent note. ‘However, when peeling back the onion, there is a developing trend with middle-market consumers which plays right into the hands of Apple’s iPhone. That trend involves the notion of ‘trading up.”
Back in 2001, digital music players were for the most part cumbersome and ugly. Then along came Apple with their user friendly iPod. It took a while for them to convince us we needed one, but when they did, we were racing to the shops to buy one. They now account for 77% of all digital music players, and God help the parent who decides on buying a different brand for their child’s birthday.
The position is the same with smart phones now, says Holland, who believes the iPhone can do for the mobile market what the iPod has already done to the digital music one. “It’s (the iPod) so easy to use and it’s so straightforward. Whereas smart phones on the market can be quite difficult things to use, even for simple tasks. (Other) smart phones will have to follow suit because they can’t hope to tempt anyone away from an iphone without anything superior.”
So it gets the thumbs up from the tech spods. The next question of course, is what the iPhone can do for the business. Do investors have cause to be as equally excited as the tech heads? “People definitely have reason to be optimistic both about the prospects of the iPhone and its potential impact on the company and the stock,” says Scott Kessler, an equity analyst with Standards & Poor’s in New York
Apple say that they’ll have shifted 10 million units by the end of next year, thus cornering themselves 1% of the global mobile handset market. That’s an average of half a million every month for the next 18 months. But “Apple tends to be conservative when it comes to any kind of forward guidance,” says Kessler. “I think its fair to say it’s a pretty conservative goal.”
Listening to the rumours and speculation coming from Asia, that would certainly look to be the case. Reports are surfacing that orders of upwards of 17 million units have already been placed with Apple’s manufacturers on the continent. In a recent note, Credit Suisse analyst Richard Semple estimated that Apple will sell 5 million in 2007 and 15 million in 2008.
It’s exactly the type of publicity Apple craved for. Back in 2001-2002, CEO Steve Jobs employed a similar tactic when trying to build up hype around the iPod, keeping supply just in line with demand. The result was a series of temporary shortages of the digital music player, and unrivalled bursts of promotional support.
“All this excitement garners greater interest in Apple and everything it does. That means more people are going to be walking into their stores, visiting their website and that I think is most definitely going to result in greater sales of other products (like Macs and iPods)”, says Kessler.
So could Apple be entering a new growth phase? Gene Munster, an analyst with Minneapolis based Piper Jaffray & Co. seems to think so. He has a price target of $160 on the stock. It was trading at $123.64 yesterday. He reckons that Apple could sell more than 40 million iPhones in 2009 alone. That would lift revenues 30% for that year, and earnings by 40%.
Turning to the stock markets…
In London, a weak start on Wall Street dragged the FTSE 100 into the red yesterday afternoon. The blue-chip index fell 17 points to close at 6,505. However, heavyweight risers Vodafone, GlaxoSmithKline and BHP Billiton offset losses for homebuilders and utilities stocks and kept the FTSE’s losses below those of major indices elsewhere. For a full market report, see: London market close.
Elsewhere in Europe, the Paris CAC-40 closed 87 points lower, at 5,890, whilst in Frankfurt the DAX-30 was off 111 points, ending the day at 7,618.
On Wall Street, the Dow Jones closed sharply lower, losing 198 points to end the day at 13,266. The S&P 500 was 26 points lower, at 1,490. And the tech-heavy Nasdaq was 45 points lower, at 254.
In Asia, the Nikkei closed 274 points lower today – at 17,779 – as property stocks were hit by interest rate fears and exporters by weakness in the US and elsewhere.
Crude oil had fallen to $66.71 a barrel this morning and Brent spot was at $71.58 in London.
Spot gold was down to $658.30 this morning, from $659.50 in New York late last night. And silver was slightly lower, at $13.41.
Turning to currencies, the dollar climbed to two-month highs against both sterling and the euro this morning. However, the pound had climbed back up to 1.9677 against the greenback this morning and was at 1.4705 against the euro. And the dollar was last trading at 0.7462 against the euro and 120.98 against the Japanese yen.
And in London this morning, Lloyds TSB stated that first-half pre-tax profit would rise by at least 10%. The bank pointed to good revenue growth in consumer banking, ‘substantial’ cost-cutting and falling losses from bad consumer debts. Shares in Lloyds TSB had fallen by as much as 0.4% to 567 pence in early trading.
And our two recommended articles for today…
Why it’s time to take the inflation threat seriously
– Headline inflation may be enjoying some relief in many parts of the world at present. But exploding food prices and the threat of $100 oil mean any celebration would be premature. For Niels Jensen’s take on why equity investors should be more concerned by rising prices, click here: Why it’s time to take the inflation threat seriously
Who’ll break the dollar peg next?
– Which Gulf oil producers will follow in the footsteps of Kuwait and cease pegging their currency to the dollar? Is China planning to offload some of its reserves any time soon? Will US interest rates rise? To answer these questions, it may be as well to listen to what policy-makers are implying and assume the opposite, says DAvid Galland. For his analysis of the outlook for the dollar, read: Who’ll break the dollar peg next?