I feel like I'm calling into a talk radio show - "long time listener,
first time caller."  Anyway, I've had the education of a lifetime the
last two months - paid the tuition check on Dec. 27 (ugh....my
accountant is going to kill me) and had final exams the last few days.
I aced my midterms this week, but the finals are still to come.  I
expect a 4.0.

Anyway, great discussions on this board.  It takes a while to filter
the wheat from the chaff, but there are good folks here that are eager
to help others.  I like that.

(To a few posters' dismay) there was no mention of earnings yesterday.
I believe this is because the number will be such a blowout that it
wasn't worth pre-announcing and lumping with the iPhone.

But a part of Mr. Jobs' speech really caught my attention.  These
weren't just words (like the mis-interpreted quote on Macrumors), but
actual displays on the screen.  No slips of the tongue here, but edited
and reviewed Keynote slides.

1) Through November, Zune had a 2% market share; Apple had a 62% market
share.  Data was not available for December.

2) The annual market for MP3 players is 115M units.  He used this
figure before showing the market of 950+M cell phones.

3) Apple sold 25M iPods in 2006 Q2 - Q4 (Jan 1 - Sep 30 2007).  Source:
SEC filings.

4) If the figures on the Keynote slides are correct, a 62% share of a
115M unit market is 71M units.

Could Apple have sold 46M iPods in Q4?  (Indeed, could Apple have
SHIPPED 46M iPods?)  That's about 500K a day.  Possible?  I have no
idea, but I bet analysts are trying to figure that out (or already
have).  I do know that they aren't going to be too forthcoming with
such wild numbers.  They'd be laughed at.  (Can you believe Morgan
upped its target to $98 today?  Blockbuster!)

Run the numbers:

1) Average iPod price is $207 (source: SEC filings/my calculations).
Take that down to $200 for ease of numbers and the $20 price point
reduction for the new Shuffle.

2) 46M iPods @ $200 is $9B in revenues.

3) Apple's avg margin is conservatively 20% (again rounded down).

4) $1.8B in iPods gross profits 07Q1?  That's $2.00 per share.  Apple's
effective tax rate is about 30%.  High estimate of $1.40 earnings just
for iPods?

Far-fetched and simplistic, but where am I going wrong?  I think maybe
the 115M market size is too big.  But 1 MP3 player for every 9 cell
phones in the world isn't too implausible....  Of the people I know
with cell phones, I think I could find 1 MP3 player for each 9 phones -
and I don't hang out with very young people!

Say this is somehow twice as big of a number it should be and Apple
only (!) sold 23M iPods.  Cut the numbers in half.  $0.70 07Q1.....just
on iPods?

That doesn't even start to account for the increasing PC market share,
the blowout sales of MacBooks, etc.  And Mr. Jobs just re-vamped the
entire iPod line yesterday - Apple just hasn't announced it yet.

(Disclaimer: I outlined and sourced the above comments, what follows is
just conjecture)

What could bring the stock price down at earnings?  Lower than expected
guidance.  Are we expecting Apple to guide lower than previous
estimates, considering all of the talk of the iPhone cannabilizing the
iPod market (a CNBC guest said they expect 50% cannabilization)?

Apple will guide conservatively, but not below the analysts
expectations.  iPods will not be cannabilized, because they will
release the new wide-screen non-phone iPod.  I'm expecting up to 120GB
at the same price points as the old ones.  That's in line with Apple's
typical pricing model.  Pick a price point that works and put Moore's
Law to work.  This upgrades and completes the line: shuffle, nano (the
click wheel isn't going anywhere and nike has an awesome investment in
the nano - it's the perfect high-class, mid-level MP3 player), and now
the wide-screen non-phone for video and super high capacity users.

After all, what was in those shipping containers, realtyprov...?  Not
the new iPhones, but the new iPods.

Apple, Inc. has settled all claims from the Apple across the pond.
There is no name change without such an agreement.  They kissed and
made up (or been paid off/bought out).

The new "U2 iPod" will be the Beatles iPod.  This is a no-brainer.
Either the launch is delayed because of the McCartney divorce mentioned
elsewhere (plausible if true, but I have no research there), or to give
another excitement bounce down the road.  Remember that this ENTIRE
year is slated to be full of amazing announcements.

Cisco is a non-factor.  I bet they don't even know that when they
weren't protecting their trademark, Apple went and filed for a new
trademark.  The guys in Cupertino are so shifty.  No, ruthless.  Tease
Cisco with negotiations and make them sign an NDA so they can't discuss
negotiations until after the announcement of the phone.  The more NDAs,
the more people keep their mouths shut.  When Cisco doesn't extort its
fee before MacWorld, it goes public with a lawsuit.  Apple plays along
(for how long? a night? a few days?) and then they release a filing to
the press that says they filed the trademark earlier this year.  Cisco
is now in violation of Apple's trademark and Apple gets something from
an embarrassed Cisco.  Mr. Jobs and Co. are geniuses, but are Cisco's
lawyers that stupid?  I can't imagine that they are, but I wouldn't put
it past Apple to do what I described.  What's the government lag time
for publishing trademark claims?  Patents take a while to come out....

You HAVE to release product to keep a trademark.  Other posters have
made that clear.  I'll add this to the discussion: my alma mater, USC,
makes a big statement in the annual football media guide instructing
the media to not use the term "Southern Cal."  Yet, the bookstore
produces one "Southern Cal" branded item each year.  It's in small
quantity and it's obscure, but it protects the trademark owned by the
University.  Cisco can say that they own a trademark filed in 1996 (11
years ago), but they never exploited it.  Apple stole the trademark.
They're not stupid.  Is Cisco?

I confirmed all of this in my mind when I saw the smirk on Mr. Jobs'
face during the Nightline interview.  Can you imagine what it must feel
like to give a 100 minute speech that added $6B of equity to your
company (of which you own a nice piece)?  Compound that by secretly
knowing that what's still in the pipeline will dwarf that $6B.....  I
bet that lunch and a movie with Phil and Jony yesterday were heady
times.

If Apple has proven anything, they are master marketers, led by Mr.
Jobs.  Master marketers are master PR artists.  If you believe that
"hedgies" can manipulate news (and I do believe that), a secretive
company like Apple with an amazing PR staff can orchestrate these
announcements over the course of a year (as the marketing has told us)
and create billions of dollars of equity over months rather than 100
minutes.  Was there ever LESS (in terms of number of items) discussed
at a Steve Jobs Keynote speech?  It's all coming, folks.....

[Now I'm venturing into an area I'm not sure I should.....prices]

Yesterday I was concerned whether Apple would pass its historical high
of $93+.  Boy did it pass it!  Did anyone watch the stock bounce off
the mid-$93s for about 5 minutes this morning and never get near it
again?  Technical traders will point out that the old high (resistance)
becomes the new support, right?  100M shares have been traded above
that new support in just one day.

I take it one step farther.  Hate to sound overly dramatic, but I think
that $93 will not just be a support level, but the new $0 for "Apple,
Inc."  The game has changed.  Once the iPod was realized, did the stock
ever go south of where it was pre-iPod?  What about iTMS?  I bought my
first shares of Apple in April 2003 when I read about iTMS.  Even
though it was available only on Macs, it was the digital solution the
world needed.  The price was $6.50 (split adjusted).  I'm not sure it
ever went below that again (i haven't researched that tonight).

I won't make guarantees and don't want anyone to make a purchase based
on this brain dump.  It was on my mind and now I've published it (Web
2.0, eh? That's why Time named me Person of the Year!).  When I read
this again tomorrow, I'll probably be upset at my too-extensive use of
parenthetical comments and I'm sure there are some typos.  I'll be so
disappointed in how my written words represented myself.  But I don't
feel like editing and re-writing.

One more thing.  I believe it was Becca who implored a noob tonight to
"have targets."  You're nothing without targets and time frames.  My
target is $105 by Q1 earnings announcement and $150 3 or 6 months later
(haven't decided yet).  There will be ups and downs, but my year end
target is $200.  I don't expect a stock split, since Google has made it
cool to have an astronomical number attached to your stock price,
online trading provides fixed investment costs ($9.99 of whatever
amount you are trading) and round lots are so last century.

[Note: I submitted this at 22:21 MST on 1/10.  Let's hope Google Groups
approves my new account!]

great post. also, noone is talking about how apple beat msft to the
living room with apple TV (that will be big). But the biggest sleeper
is ITUNES! the sales on itunes will be through the roof, they have
established market share in digital media and it's there to stay. i see
it going to 115+ following earnings, with new support level at 110.

great atriculate post but $200 by the end of the year? At 50x ( if the
Fed eases ) that's $4 a share ..could be, but I think these numbers are
kinna uh aggressive just like the 46M ipods. My local Corde Madera
store had a section cordonned off just for iPods. Ya know maybe it was
just the days i was there but, in truth, I wasn't seeing that kind of
activity ( 3x last year ).
On waiting for the dip .. forget the dip, there are plenty of days left
for trading to display signs of consolidaiton, just like last week.
When that happens, back up the truck.
Also notice the timing of the iPhone. We won't see it's impact on
revenues until Q3 earnings, say mid July. hmm, gee, low point last
year: Jul 14 - three days before Q3-06 earnings.

@Blake.....hadn't even thought of iTunes.  Apple grosses about $0.35
per track according to the music industry (check CDBaby for a thorough
non-business description of the iTS business model).  1B songs in the
10 months leading to calendar year end.  With the exponential growth
Mr. Jobs talked about, how many of these tunes are backloaded in 07Q1?
iTS has high overhead with the credit card charges, but the numbers are
getting big enough to finally add multiple pennies to the quarterly
earnings (they've never been broken out before).  iTS, the world's
third-largest retailer of music is nothing to sneeze at...

@ada......hadn't considered the Fed effect on PE.  $200 is likely
aggressive, but I think we'll see it sooner than we'll see 75 again.  I
haven't even targeted when $150 hits,

In Chandler, the Apple Store brought out handheld credit card
authorization machines to handle the crushing demand.  46M iPods would
be insane, but it fits Mr. Jobs numbers.  I still have a harder time
imagining ordering, manufacturing and shipping 46M iPods than selling
46M iPods.  8 of top 10 slots on Amazon, huge stacks in Costco,
expanded Apple presence in Best Buy and other mainstream retail....
The capacity to SELL 46M iPods is there, but did they have enough
foresight to MAKE 46M iPods?

Thank you for an interesting and well researched post. My PC
calculations resemble yours for ipods - too incredible to believe.
Time will tell!

@Becca.....Whoa!  I haven't looked at PCs either, but figure that
they'll be knockout.

BusinessWeek reports yesterday that "Jobs said in his remarks that
Apple's goal will be to sell 10 million units by 2008, which would
account for roughly 1% of the phones that will be sold this year. It's
an aggressive goal, but hardly audacious, given that Apple will pass
the 200 million mark in iPods sold sometime this year."
http://www.businessweek.com/technology/content/jan2007/tc20070110_535...

I wonder where they came up with the 200M iPod mark.  Does anyone
recall an announcement of having sold the 100 millionth iPod?  Part of
me thinks that there would be a big countdown like the billionth song
on iTunes.  Maybe that's too hokey....like the 1 millionth customer
schtick.

Apple filings show about 80M iPods through FY06 (Sep 30 2006).  [i
don't have 01, 02, or 03 in my notebook, but 04 was 4.4M.  I'm guessing
that's about what Apple sold in the first three years of the product.
Maybe I'm underestimating the number in my laziness, but not more than
5-10M max.  Hardly a dent in the run to 200M]  So, BusinessWeek says
200M in the next year?  Hmmm.  120M is a lot in one year, unless there
was a huge holiday quarter.

I don't put much stock in a fleeting comment in a consumer publication,
but it was interesting to note nonetheless.

Another interesting thought.  Apple's pricing models (discussed above)
keep revenues steady with volume.  Not sure if I'm saying that right,
but an average cost of $200 per iPod last year is going to be
consistent next year (excluding the iPhone line).  Speaking of iPhone,
has everyone thought about how the $499 and $599 price points don't
include the subsidy from Cingular?  Maybe the subsidy is a profit-share
as someone (realtyprov?) suggested, but it's at least $200 a phone
based on current products in the marketplace.

In searching for "100 million iPods," i came across this analyst's
report:
http://www.macworld.co.uk/news/index.cfm?NewsID=10252

"A leading Wall Street analyst expects 100 million Windows users to own
iPods by 2008."  He also predicted 23.6M by 2006, which is under by
about 50%.  Growth rate has been phenomenal.

Fascinating posts here - though I remain skeptical of some of the
higher numbers.

In saying that, I can't see the earnings report being anything but
great news. When you factor in what Steve has said on top of what I
think of as "strong unknowns" like the intel Mac sales figures, I think
we'll all be impressed when the report is issued.

dan...@gmail.com schrieb:

That means you bought after the tech bubble bursted. I can tell you
that this will happen again because many people are doing the same
faults. They don`t learn of their faults. When it will happen - no one
is knowing that but I a lot knows that it will.
You are probably that kind of people looking only on PE(G) and are
telling that a PE of 30 and more is okay when the PEG is around 1.
What`s going on when the growth stands away. What about price to book
or casflow of AAPL? Look at GOOG and you can see an over-priced
company. I don`t say AAPL is over-priced but look on fundamentals too
and don`t get too euphoristic! A stock price of 120 or maybe of 150
could be okay but 200 and more? AAPL isnt cheap concerning price to
book or casflow - but much better than GOOG.
I think AAPL will get a pull back ins spring to late summer for
increasing again in forward to january 08. How high it will go before -
no ones knows! Bad news are coming faster an a lot
are selling their stocks very easily - so keep carefull.
I`d like to see higher AAPL quote to - I`m not a bear - but neither a
blind bull.
-just my thoughts-

In fact, in the keynote introduction to the iPhone, Steve says they are
just about to pass 100M. BW is taking crazy pills.

mac.be,

this is nothing like bubble days. go back and look at the average PE in
tech/internet stocks then compared to now. furthermore, the average
investor had more than 1/2 of their portfolio in tech/internet stocks-
even the pros got iresponsibly overweight. is there over-valuation? in
some pockets, yes. can tech correct to the downside? most probably. is
this a "tech bubble"? no way.

people point to GOOG targets of 600+ as proof that things are going
crazy, but GOOG makes $$$. the 400+ targets in the bubble were given to
companies that weren't making a dime.

also, the crescendo was the AOL/time warner deal (done in stock
mostly)- nothing like that is on the radar. and don't forget the sock
puppets- they are a dead give away (that's a joke- i doubt any PR/ad
firm will ever again propose to a client "hey, u need some sock
puppets."

this is a timely article on bubble discussion:

http://www.thestreet.com/smallbusinesstech/smallbusinesstech/10331619...

Dan, I applaud your efforts, but I'm not sure your logic is correct.  I
remember that part of Jobs' speech too, and I think when he was talking
about market share as a whole as opposed to "market share of the units
sold that year."  (Although, you may have a point given that he said
Zune had a 2% market share -- that seems pretty high for a product that
was just released.)

If he meant total market share, then you can't just apply the 62%
number to the annual market for mp3 players because he would be saying
that 62% of the mp3 players "owned" in the world were iPods, as opposed
to 62% of the mp3 players "sold this year."

I'll have to look at the keynote again to see exactly how he phrased
the 62% and 2%.

Yea, I just watched the keynote again and it's unclear whether he means
market share of the mp3s sold that month or just general market share.

mac.be,

Interesting post.  Would you mind providing more information?

a) Could you please give your reasoning for why we shouldn't expect
Apple to continue high growth for at least the next few years (refer to
specific product lines if it helps)?

b) What do you think is a good PE for aapl and why?

c) Why do you think price to book and price to cash flow are a
particular problem in the case of Apple?

d) Do you have a target price for Apple, and if so, what is that price,
and what logic / numbers do you base it on?

e) Why do you think aapl will get a pull back in the spring to late
summer?

I would very much appreciate hearing back from you on these things.
Your answer would be a good balance on these boards.

he means the mp3 market is about 115 mill per year.  if iPod has 62%
for last calendar year that is 71 million units.  he could mean that is
what the estimates show it will be in 08 but if apple wants to sell 100
million ipods in fy 07 then the market for fy07 would have to be 138
million.

Interesting analysis yet you neglect to factor in two more areas the
analysts are pondering:

1. The iTV may bring huge profits while it takes Apple out of the kid's
room and into the living room.
2. The Nike iPod device to track workouts apparently sold better than
expected. It is being promoted heavily this year.

If Apple sold 80 million iPods before the Christmas quarter, then the
Christmas quarter sales were less than 20 million.  In the keynote
address, he said that they would ship the 100 millionth iPod this year.

20 Mil ipods in Q1 would not be unreasonable (since it is holiday
period and look at sales for other quarters), and would still represent
incredible earnings on iPods alone.  If this statistic is correct, I
don't see how Apple could manage to have earnings under $1 this
quarter, what with PC growth and all.

Has anyone tried to work with the statistic, 'Half our sales last
quarter were to people who had never owned Macs?'

Sounds like sales growth of about 50% to me - unless Mac owners have
stopped buying.  Am I missing something here?

And Apple is adding to the Nike+ line with a wireless wristband
controller- Nike Amp

Apple is going to be a business school case study on partnerships.

Dan
Regarding the iPods.. is my believe that Apple includes in those
numbers all of the products of the iPod family  which includes the
Nano, and shuffle,  the shuffle was an extremely hot item and got sold
out pretty much everywhere.   The number will be big, but i'm not sure
whether it will be that huge, with the shuffle in the mix it could
completely be possible.

I believe guidance was lowered last year because of uncertainty with
the transition to Intel chips and Adobe not releasing the universal
binary for its software the same year.  given the numbers of Macs sold
i think we can all say that guidance was extremely conservative and
we'll see an upside surprise come 17th.  If anything Apple might raise
its guidance given the new products iPhone, AppleTV  as well OSX10.5
coming out later this year and a surge of MacPro's being sold thanks to
Adobe finally releasing Adobe Studio CS3.

I completely agree with you, that the iPhone will not compete with the
iPod or take its market share.  is not going to replace it either.
There is going to be a lot of speculation regarding this subject and
could be manipulated to drive the stock down.  The problem is that
Apple will not be willing to come out and say we a have a stand alone
wide screen iPod with multi-touch technology coming out this year,
because potential buyers of the iPhone might hold on and wait for it.
But i'm pretty confident that will finally see a 6Generation iPod
before this year ends.

Becca, it's not a sales growth of 50%.  Think of the extremes.  If they
only sold two macs last quarter, and one was to a previous Mac owner
while the other was to a new convertee -- they could still say that
half of our sales last quarter were to people who never owned macs.
However, two macs last year would certainly not be an increase in sales
growth.  Of course, on the other extreme, they could have sold a
billion computers last quarter and that would equate to more than 50%
sales growth.  So his comment that half of their sales last quarter
were to people who had never owned Macs has little predictive value.

Thanks merkhet.

How this might be measured:

What percentage of buyers in past Q1s were new users.

What is the difference between that number and 50%.

Assuming number of old users buying Macs holds steady, use that
difference to find hypothetical sales growth.

This is not the only angle to take on this - I remember reading reports
on Mac PC market growth, that were largely ignored.

The Nike Amp thing looks nothing like a real, sophisticated Apple
product. I doubt it is.

It's simply a wireless remote. It would be a lot better with a heart
rate monitor, since a lot of serious runners already have one of those
on their wrist. Not sure how much input Apple has on the product,
although the Nike+ is actually an Apple product, with Apple warranty,
etc.