Apple's Gunning for Records with September Quarter

As analysts line up their predictions for Apple's (AAPL) upcoming quarterly earnings report, one thing stands very clear. Records are made to be broken. In the quarter that saw the continued success of iPhone 3GS, price cuts on Mac Computers and a slew of upgraded or new iPods, the company is firmly poised to deliver its best back to school season ever. Apple's typically conservative guidance for this quarter called for earnings in the range of $1.18 to $1.23 in profit/share on sales of $8.7 to $8.9Billion.

Standing in stark contrast are analysts with Revenue figures at $9.2Billion and profits of $1.42/share on average. Apple over the last few years has beaten earnings expectations by a staggering 39% and Revenue by 7%. Perhaps the analysts have caught up this time? Not yet. 90 days ago the average estimates stood at $1.27 and have climbed since to $1.38 and where it currently stands at $1.42.

But, since when do analysts really have a handle on the hot trends of the day. The Apple generation of the 2000s have grown up with iPods being a must-have, the Mac as a must-have College tool and now the iPhone as the it mind-share capturing device. But analysts, like most things come in all shapes and sizes and estimates, certainly for Apple, can vary wildly.

On the Computer front, expectations have risen for Apple to sell upwards of 2.8Million machines, a new record for the company. In the year ago period, that number was 2.6Million. While iPods are slowly an eroding business, another 10Million units are expected to cross hands, and the stunning growth of the iPhone business will continue with estimated sales of about 7Million units.

While Apple's been dropping prices on Macs and iPods to maintain sales and grow share, it has plenty of room to keep margins steady as the iPhone is by all accounts a profitable monster, and the launch of Snow Leopard software adds to the margin story. Taken altogether and the pros are calling for continued sales success at Apple.

Whether the market believes it too is the next test.

Disclosure: Author owns AAPL

As more go back to school, less are out of work

The Labour Day weekend in North America was met with a Friday stock rally based on encouraging employment figures that saw 216,000 jobs lost in the month of August. Although 216,000 is still a significant number out of work this trend of a decline in job slashing, a figure that was upwards of 700,000/month at the peak of the recession, led investors into confident buying to start the long weekend. Furthermore, Canada's job picture actually showed job growth in the tens of thousands signalling a shift out of the recession and leading the TSX Composite Index to new highs for the year.

Tuesday's morning action continued the trend, as market's saw green in the early going, this time fueled by commodities, especially gold, with prices around $1000/ounce. Major market benchmarks were all higher between .5 and 1% with the S&P leading the way.

America's battle for Health Care is taking a more dramatic turn this week as President Barack Obama issued a strong pro health care reform speech to the labor force and is set to speak again to Congress on Wednesday as the health debate enters its final stretches.

Kraft Foods (KFT) is taking a bit of a beating today as it issued, and was quickly rejected in a $16Billion bid for Cadbury (CBY). It's clear investors want more out of a takeover bid, with analysts already speculating the Chocolate maker could fetch near $21Billion if another suitor was found to compete. Shares of CBY are up nearly 40% giving a market cap well over $17Billion, so it seems traders are sharing the investor sentiment for now. Shares of Kraft slid 5% on the news.

Also on tap tomorrow is an annual iPod-related event from Apple (AAPL) as it brings the media over to showcase new iPods and possibly a new version of its iTunes software. Rumors have been rampant as usual for an Apple event, and although the fabled tablet computer is unlikely to appear, new iPod Touch and iPod Nanos are expected to the sporting cameras for easy on the go pictures and videos. Shares of Apple are up almost 1.5% today but are expected to fall following the event unless Apple can surprise with a new announcement of some kind.

Disclosure: Author owns AAPL

Apple earnings on tap after Tuesday's close. [Update]

Update: Apple's reported earnings included.

What can Apple Investors and traders expect after the bell today as one of tech's giants reports its June quarter? Well if one thing is certain with Apple, each line of business will be speculated on ad nauseum starting at about 4:30PM Eastern Time.

Likely much of the focus will be on the Mac and iPhone businesses. New price cuts for Mac Computers were implemented recently and according to shipment data and analyst reports, this could be a driver for higher unit sales and perhaps, less than hopelessly conservative guidance for September. The launch of the iPhone 3GS was a great success in the middle of June, which will likely prop unit sales significantly above previous expectations, however comparisons against the iPhone 3G launch are far more difficult as its launch window fell at the beginning of the July-September quarter of last year.

Of course, analysts will ask the company about Steve Jobs, who returned to work towards the tail end of June, after a 6 month medical leave. The company has come under intense scrutiny for not commenting on the health of its CEO, however, it goes without saying everyone in the extended Apple community hopes for good news for a long time to come on that front.

So, to the quarter. The average analyst estimates paint a picture of Profits at about $1.17/share on Revenue of $8.2Billion. Slowly as the quarter has come along, analyst numbers for Apple's unit sales have crept up and with that too went the Revenue target.

Year over year comparisons vs estimates for the quarter are as follows:

• 2008 Macs: 2.496Million Units vs 2009 Macs: 2.5Million Units
• 2008 iPods: 11.011Million Units vs 2009 iPods: 9.5Million Units
• 2008 iPhones: 717,000 Units vs 2009 iPhones: 5Million Units

Actual June quarter 2009 Unit Sales:

• Macs: 2.6Million Units
• iPods: 10.2Million Units
• iPhones: 5.2Million Units

Now, with Macs expected to be roughly the same in terms of units and iPods down year over year, the real growth story is the iPhone. A year ago, there was incredible pent-up demand for the iPhone 3G, which led to the units sales figures in 2008 for the quarter. This year, analysts are far more optimistic with the iPhone, and have already had some help as Apple announced first weekend sales figures of the iPhone 3GS at over 1Million units.

While those 3 major product lines represent the bulk of Apple's cash creation business, not to be overlooked are the percentage of revenue that is derived by iTunes, the AppStore, Software and other accessories. Last year the Music, Software and Other categories of Apple's business represented $1.76Billion in Revenue.

Revenue Breakdown for June quarter 2008

• Macs: $3.60Billion
• iPods: $1.68Billion
• iPhones: $419Million
• Music, Software and Other: $1.76Billion

iTunes continues to grow as the online music destination and the AppStore which had no presence a year ago has gone on to become the biggest software platform in the world today with over 1.5Billion applications downloaded. Yes, most applications sold are "free" and Apple makes very little profit from this even with its 30% share of Revenue, but this drives adoption of iPhone and the more expensive iPod Touch units which drive margins higher.

While it will be hard to maintain gross margins of 34.8% given price cuts on the Mac line and the back to school iPod Touch promotion, it is possible for Apple to maintain these levels given the increased presence of the iPhone in terms of Revenue and Profits.

Total iPhone units sold to date represent 21.17Million Units and with another 5Million units estimated in this quarter it'll bring the total to about 26Million units sold to date and given Apple's deferred Revenue accounting this running total is very important as all iPhones are still contributing 1/8th of their sale price to this quarterly report.

WC Power Tech Fund Investment Blog Revenue estimates for Apple's Quarter:

• Macs: $3.3Billion in Revenue vs. Actual Mac Revenue of $3.329Billion
  
• iPhone: $2.1Billion in Revenue vs. Actual iPhone Revenue of $1.689Billion
  
• iPods: $1.25Billion in Revenue vs. Actual iPod Revenue of $1.492Billion
  
• Music, Software and Other: $2.1Billion in Revenue vs. Actual Other Revenue of $1.827Billion
  

All told, $8.75Billion in Revenue, given similar margin treatment as a year-ago, which brings profits on 890Million shares outstanding to the $1.40/share level. If this is similar to what Apple officially brings to the table today after the close, the bulls on the stock, will have something to continue to cheer about, despite the increasingly hollow guidance-chasing game.

Apple's results:

• $8.34Billion in Revenue
  
• $1.38 Basic EPS (890Million Shares) & $1.35 Diluted EPS (909Million Shares)

Disclosure: Author owns AAPL.

A Tale of Two Cities: Easter News and Notes

A tale of two cities, screams to be profoundly appropriate in describing the current climate of the American markets. Those two cities of course would be Detroit and New York. Symbols representing two pillars of the American workforce and economic prosperity. Both the auto and financial industries have been decimated by losses, layoffs, and market indifference, producing for some, the biggest market fall since the crash associated with the Great Depression.

Detroit's auto stocks are still in tatters, and the news did not get much better. The US Treasury has provided General Motors (GM) with a specific set of instructions for the preparation of Bankruptcy on June 1. It looks less and less likely that GM will be able to avoid that scenario and Investors showed no confidence in any alternative as Monday's trade saw GM give back 16% to the $1.70s.

To counter that, New York was having a fantastic session as the optimism from the Wells Fargo Corp (WFC) pre-announcement of profitability sustained financial momentum. With important earnings announcements upcoming, Goldman Sachs (GS) and Citigroup (C) Investors are seeing a renewed confidence in not only profitability, but the ability of the government to do what it has set out to do. Rid the financial books of terrible assets.

Analysts estimate Goldman to earn about $1.30/share, but the street has begun its whisper-practice and with Goldman still seen as the strongest of the Wall Street brands the company is expected to beat its own number and handily. Citigroup, having alerted the market to profitable months in January and February is looking to continue, despite the accumulated average estimate of a $0.37/share loss (according to Yahoo finance). Goldman will likely set the tone for the banks, and if others in the sector can surpass their estimates it will go a long way to support this current market rally, and instill the type of institutional confidence that is needed to make the latest gains sustainable.

Also in the news over the weekend, besides a thrilling Masters golf finish, was reporting from the Wall Street Journal (Link) that Apple's (AAPL) iconic CEO Steve Jobs, is in fact still very much in the picture and involved in design and business decisions. Word is that Jobs was very much involved in the interface of the latest iPhone OS, version 3.0, and is also involved in the creation of the much-heralded Mac tablet/netbook device. The return of Steve Jobs, from a 6-month medical leave has been a cloud over Apple's stock despite sales growth and product innovation from the company. The recession may have curbed consumer spending habits severely, and Apple's premium brand did suffer, according to market research statistics, but with the company continually improving its Mac Computer and iPods lines recently and an upcoming iPhone announcement surely in June, Investors have begun to set aside worries about Jobs.

Should Jobs return on schedule and lead the next phase of iPhone evolution, expect resonant cheers and analyst upgrades on the anticipation of the next phase of Apple's product road-map. In fact Kaufman Bros. Shaw Wu conceded Apple's value in his latest report, bumping his price target to $150/share.

News reports of the rally's sustainability have been mixed, with some expecting negative trends to overshadow any glimmers of recovery. Thsoe glimmers however, are due to get brighter if the financial sector continues on this path of pre-announced profitability.

Smartphone Wars to heat up this Summer

The new hotness, no not Twitter, but the smartphone, is gearing for an all hands on deck gadget war this year and beyond. While smartphones have been around for sometime, it was only until recently (read: iPhone) that momentum has picked up faster than Usain Bolt. With two main rivals now leading the charge, Research In Motion (RIM) and Apple (AAPL).

This isn't a 2 horse race however, nor will it be over soon. As RIM executive Jim Balsillie recently said on the company's conference call in baseball terms, the smartphone wars are somewhere in the 2nd inning. What may seem like an Apple and RIM race to win, certainly can be turned upside down with entrants from all of the world. Although smartphones account for less than a third of the phone market, they command nearly 90% of the media coverage and almost all of the growth. According to Mobile Advertising Network AdMob, smartphone share increased from 26% to 33% in the past 6 months. This growth trend seems likely to continue as popularity in these devices continue to gain and subsidies for the most popular devices reign in even the most worrisome economic consumer.

Although Nokia (NOK), may be the biggest phone maker in the world, its smartphones have yet to inspire consumer desires such as the iPhone from Apple or the Blackberry Bold from RIM. Although by sheer volume, Nokia with its range of models holds 3 of the top 5 most popular smartphones spots globally, trailing only the aforementioned iPhone. Trends are shaped by consumer decisions as well as the push from corporate entities, and as such none of these companies are standing still, nor can they afford to.

What's on the horizon then? An analyst at Barclays is reporting that Apple has doubled iPhone production in anticipation of new models coming in June (Link). Recent iPhone speculation has pointed to not one but two phone models expected out of Cupertino this time around, conveniently coinciding with the release of Mobile OS X software version 3.0 in June. When Apple reports results for the first calendar quarter of 2009 it will surely surpass 20Million unit sales for the iPhone, not too shabby in about a year an a half.

With the AppStore becoming a global phenomenon Apple is making it extremely tough for users to ever switch away from an iPhone. If you've spent hard earned money on applications to make your phone function exactly how you want it to and have the features you want, you'll of course be less tempted to switch to something else if it means losing those precious applications. When iTunes purchases only worked on iPods for all those years, it drove an upgrade cycle for the company like nothing the music industry had ever seen.

RIM, fresh off the release of a new Curve, the well-received Bold and the mixed touchscreen Storm, has had information leak out about 3 new devices codenamed Onyx, Driftwood and Magnum. This coming from a company that had shipped almost 8 million devices in its most recently announced quarterly results, sending shares higher by 20%. RIM is certainly hard at work, but its not an easy task convincing the general public the virtues of a Blackberry. Always the device of choice for the business user, as smartphones have become increasingly consumer-focused RIM had a tough balancing act to strive for. For the most part, judging by the results, RIM has done very well. Initial critical thrashing of the touchscreen Storm notwithstanding the device has been successful and further forays into iPhone touchscreen territory by RIM will likely be greatly improved. And not a soul can say negative things about the hardware RIM uses for its keyboards, they are always top-notch.

Palm (PALM) has somehow starting erasing its name from the gravestone it was surely destined to have after several quarters of significant losses. The driving force for the resurgence! A little device by the name of the Palm Pre. Wowing audiences earlier in the year with iPhone-like admiration, the Pre is set to launch in the US soon, followed by International markets later in the year. There still is much at stake for Palm, but the feedback thus far has been incredibly positive on the new device, and with the work put into Palm's WebOS platform the company, and consumers, expect a wide range of WebOS devices going forward.

Google's (GOOG) Android has had a rather slow start but will likely pick up steam in the latter parts of the year as not only a second handset from HTC, the company that produced the G1 for T-Mobile, is due as well as multiple devices from Samsung. With carriers in the US and abroad looking at, adopting, and testing Android, it seems only a matter of time before Google's vision of hundreds of Android phones becomes a reality. T-Mobile is even talking about launching Home phones and netbooks running Android, and a recent story about HP had the company confirming it will be testing Android for its netbooks. The free, open-source platform has proved resilient despite some questionable early roots, and as the platform stabilizes and is available on more handsets and in more incarnations consumers will increasingly see Google's web based products, and ads, within their mobile world.

Like Google, Micrsoft (MSFT) has only been providing software for smartphones, however all the momentum a bloated Windows Mobile has garnered in the past has seemingly been lost in the past year. With flashier devices like iPhones, Blackberrys, Androids and Pres being on consumer minds the battle remains uphill for Microsoft. A software overhaul is needed for Windows Mobile and it certainly doesn't help the company that it announced a visual overhaul (Version 6.5) but slated it for release at the end of this year, while a proper, better Windows Mobile 7 is scheduled to come sometime in 2010. Microsoft can't afford to wait much longer as Android gains momentum, and while the other most popular smartphones all run their own platforms.

All in all, consumers will have an abudance of choice in 2009 and beyond, and as their devices do more things they need, the world as we know it will change from the at-home/at-work Internet dominated era to the mobile/on-the-go Internet dominated era. The one constant is being connected and with each software platform making a better Internet experience each time around the debate surrounding Internet browsing is fading. The only way to get ahead in this game is to bring incredible new features (such as 3rd party applications) wrapped in elegant hardware that consumers feel inspired to purchase and use. While Apple and RIM are leading in that sense now, by the time this year's crop of devices are released we may just be nearing the bottom of the 4th.

Disclosure: Author owns AAPL, GOOG, owns long-term call options on MSFT

...And now starring Tim Cook as Steve Jobs plus a look at Apple's Quarter

In a memo that spread throughout the press like wildfire, Steve Jobs, CEO of Apple (AAPL) announced that he'd be stepping away from day to day duties to focus on his health issues. The iconic CEO cited further complications in this treatment to fix a protein irregularity along with the fact that persistent rumors about his health becoming a distraction to Apple's current management team.

The media back-and-forth had gotten so bad and become such a distraction that it forced Apple and Steve to release a letter to the "Apple Community" describing briefly about his personal health issues in an effort to reassure Investors that the company was not only in good have but had Jobs for the foreseeable future. That future got murky very quickly in after hours trading with Apple shares falling 5% on the news of Steve taking a 6 month leave of absence.

And the media back-and-forth continues, as several pundits are calling Apple out for not being open enough in disclosing the true nature and severity of the health issues Steve was facing. While Apple's corporate line of a "constantly evolving" situation with Jobs will hold under most scrutiny it will not come as a shock to anyone if the lawsuits start piling higher at the desks of Apple's counsel. As share prices have eroded in the last 12 months and with Apple sitting at $80/share the $190s seem like a distant memory, and while much of decline is attributable to general market and economic factors the haze of doubt over Steve Jobs, his health, and his ability to continue on as CEO, contributed a meaningful part of the sell-off.

The memo from Jobs concludes with the friendly "see you all this summer" send off yet many outlets are skeptical of his return at all. Apple it seems has been prepared for a transition for some time. Over the course of the last year, several Apple product events have had Steve share the stage with others in an effort to showcase the brilliant team Apple has surrounded Jobs with. This was most notable at this year's MacWorld conference in which Marketing guy Phil Schiller took the stage for the keynote speech. Taking the company reins during the 6 month term will be Tim Cook, who's very familiar with all aspects of the company due not only to his Operations experience but the fact that he took over as CEO when Jobs had surgery in 2004.

Apple's product standing among consumers is the highest it has ever been with 4 major lines of business becoming part of every day lexicon (iTunes, iPod, iPhone, Macs). And with analysts trimming estimates and cutting price targets left and right something seems to be amiss. Economic stresses have weighed heavily on Apple as its upscale products tend to carry higher price points as compared with other companies. But here's the kicker, analysts expect higher unit sales than last year for the company in virtually every business category yet expect Apple to earn significantly less per share.

The company guidance from last quarter was no real help as a range of just over $1 to the $1.30s was alarmingly low for the Street. While current consensus stands in the $1.40s-$1.50s that is still off the holiday season of 2007 in which Apple posted $1.76/share in earnings and $9.6Billion in Revenue with a higher than anticipated gross margin of over 34%.

For the current frame analysts expect Apple Revenue on average at $9.85Billion and a gross margin in the 31-32% range slightly above Apple's own forecasts.

Last Year sales:
-> 2.3Million Macs - $3.5Billion in Revenue
-> 22.1Million iPods - $4Billion in Revenue
-> 2.3Million iPhones - $240Million in Revenue (Rest Deferred)
-> Music Sales - $800Million in Revenue
-> Other Hardware - $380Million in Revenue
-> Software Sales - $630Million in Revenue

All of the above translated into $9.6Billion in Revenue for the quarter with gross margins of 34.7% and income of $1.58Billion for a net profit margin of 16.5%.

Estimate Ranges for this year from analysts include:
-> 2.5-2.8Million Macs, led by the refreshed line of MacBook models
-> 18-21Million iPods, likely with a higher average selling price due to the popularity of iPod Touch
-> 4-5.5Million iPhones, down quarter over quarter due to the previous quarter 3G launch and the in-store activation policy for which gift cards were issued instead of iPhones.
-> The growth in iTunes digital music sales continues to be strong and the AppStore has become another line of business for the company with over 500Million Applications for iPhone and iPod Touch already downloaded.
-> Other hardware and software sales will likely be lower but in similar ranges, with any declines to be made up by the growth in iTunes and the AppStore.

So some quick accounting for Christmas 2008 for Apple:
-> The Mac business with 2.6Million units (0% quarter over quarter growth) at a similar $1500 average selling price translates into $3.9Billion in Revenue
-> The iPod business with 19.5M units at a higher average selling price near $190 translates into $3.7Billion in Revenue
-> The iPhone business selling 5Million this quarter and with 18Million units deferred at an average selling price of $400 becomes $900Million in revenue
-> The iTunes store, AppStore along with AppleTV etc becomes close to $1Billion in Revenue
-> Other hardware and software could fall to $800Million

Total Revenue estimates for Apple on this end come out to $10.3Billion and with a 2% gross margin drop the income calculation would be close to $1.6Billion in profits and per share earnings in the mid $1.70s. Year over year flat profit growth given Apple's product momentum paints a somewhat conservative picture to some, however given the current economic environment it still bodes very well given current analyst expectations. With analysts citing slowing demand and a weak economy the numbers just don't seem to add up for a Christmas quarter with Apple earnings in the $1.40s, however even in very pessimistic scenarios a drop of $0.30/share in earnings from the above estimate still beats current expectations.

While all Apple faithful wish Steve a speedy recovery and all the best during his treatment, the company is indeed in good hands and can still outperform the competition in the months to come. With Tim Cook at the reigns now the company has seemingly played its transition team cards and can move Steve Jobs into more of an oversight role with Tim behind the day to day reigns upon his return. The fact that Apple has such a competent and capable management team has always been overshadowed by the charisma of Jobs but perhaps in his absence the continued quality of Apple products will shine through and others behind Jobs will get the credit they rightfully deserve.

Update: January 16, 2009 Apple announced 500Million Application have been downloaded from the AppStore.

Disclosure: Author owns AAPL

Apple says 2009 MacWorld to be its last, Keynote sans Steve Jobs

Spin the panic wheels and beat the panic drums, Apple (AAPL) is pulling out of MacWorld. For years the marquee event for most Apple faithful, 2009 will unfortunately be the company's last hurrah.  On top of that, stock holders should feel some momentum pain as Steve Jobs will not be giving the Keynote speech at the final circling of the wagons.

The reasons given by the company were clear. Apple's too big now and too global to succumb to the whims of trade shows. Granted the corporate speak was a little more amiable.  With iPhone sweeping the globe, the AppStore a certified hit and Mac's selling in record numbers in a multitude of demographic and geographic segments, the company is actually right on the money.

The rumor-mills and press brigades will be sad to see the company go from the spotlight of MacWorld, but if this year has been any indication Apple continues to innovate and send out their darling press invites for more intimate Q&A sessions to show off new products or services. There's nothing in today's announcements to suggest these will not continue either.

While this announcement will cause a bit of a sell-off, likely led by the lingering questions of Steve Jobs health, it is clear Apple is shifting the power structure, or more so the perception of the power-structure of the company. The last press events have seen Jobs take a much smaller role in presenting and explaining. Even though I feel Apple is a much stronger stock and company than say Microsoft, I do see Apple taking a similar approach in moving Jobs into a "Chief Apple something" role in the future so that the company can be eventually transitioned with someone else as CEO.

Yes Jobs is a huge part of Apple's uprising and a huge part of the vision of the company, however with its market position, its small (albeit growing push and need for the enterprise) and its multiple product platform (iPods, computers, phones, music distribution, application distribution etc.) and its massive cash horde the prudent thing to do would be to position this "flier-momentum" company into its next phase of growth on a more even plane.  And that's shifting away from shows, doing product releases and showcases on their own terms and moving along with other potential acquisitions.

All Apple faithful love Jobs for everything he has done for the company and I don't think this is directly related to his health at all, but rather a move to begin to transition the spotlight to others at Apple. The sheer shock from "change" is enough to send Apple lowered, but investors should stay confident for a stronger than expected 2009 and beyond for the stock and the company as a whole.

Disclosure: Author is long AAPL

Apple's holiday quarter shackled by Good problems, high iPod demand

When Steve Jobs came on Apple's (AAPL) conference call the last go-round it was designed to put analysts and investors at ease. That it did, his presence calmed questioning and glossed over a then shockingly broad and conservative forecast for the holidays: Earnings of between $1.05 and the $1.30s per share of Cupertino fruit.

Introducing the Non-GAAP method for earnings was equally brilliant and needed, as analysts couldn't shake their traditional valuation methods of the company. The curve ball thrown by the iPhone's subscription accounting led to steady devaluation of the company stock, which then was taken brutally by the whirlwind of economic turmoil alongside the market. Bullish Cross (Link) did some of the most notable work recreating Apple's earnings for FY2008 putting "actual" earnings at around $7.50 vs the $5.36 reported in the standard GAAP way. A difference of over $2/share in earnings and about $40/share in price at a P/E of 20.

However, this subscription method which undervalued the company tremendously during the early stages of the Bears, will help propel the company forward in the troublesome economics that exist today. Steve's worker zealots could completely take the holiday months off and still count 1/8th of a year and half of the incredible selling iPhone revenues and earnings. But Apple folk aren't taking any time off and the expanding retail chain will be busier than ever this Christmas. Unfortunately it appears some of the company estimators forgot 2 important facts when placing Christmas build orders.

1) Apple products are hotter than ever and
2) People buy iPods as gifts no matter what

According to some work by long time Apple researcher Shaw Wu, Apple's experiencing wide shortages on iPods of all shapes and sizes. While analyst work can fall into several quality categories, most notably the work done by Gene Munster is always carefully calculated, checking shipping lead times on several web sites just doesn't qualify as ground-breaking research. It does however provide a simple barometer for demand if the sites you're checking happen to be some of the biggest in America (Sites like Amazon.com, Best Buy and Wal-Mart). As an aside, Wu, has been a constant on the Apple analyst providing reports to clients almost constantly.

When these retailers are showing shortages of select colour/storage combinations and long shipping times of other models it does qualify as cause for concern. Did Apple ship pessimistically along the lines of its forecast? Did it simply underestimate strong demand for its ubiquitous music players?

I believe the answer lies somewhere in the middle. Apple is being incredibly prudent in its cost controls these days, and after revealing to the world its new line-up of MacBook and MacBook Pro laptops and their new all-aluminum design process the R&D costs are aplenty. Couple this with the on-going work on the next version of its operating system OS X Snow Leopard, which is expected in early-mid 2009, iPhone/iPod Touch continuous software updates and whatever surprises are in store for MacWorl 2009 in January and some cost prudence is almost a necessity.

The company may have overshot it though in assuming current economic conditions would make the $230-$400 iPod Touch a tough sell. The reality is that the "Funnest iPod Ever" is performing exceptionally well and there are several reasons for it. Apple's online store has plenty of stock and has the Touch as a top seller. The App Store however, is near the top of the list if not at its peak of reasons to get the Touch. The Software marketplace pushed heavily by the iPhone in all adverts is also on and available for all iPod Touch devices, making the device far more than an iPod. As for the other models, iPod Nanos and Shuffles continue to make a great stocking stuffer year after year.

Amazon.com's list of top selling MP3 players is dominated by Apple, currently holding the top 10 spots, and 15 of the top 16. Dominance like this is incredibly hard to achieve, and even harder to maintain, as Apple has now done for the last several years. So with that research in hand, Wu's estimates call for 21Million iPod units to be sold, a little short of last year's record of over 22Million, but nonetheless a very successful holiday given current economics. Given the premise of over 20Million iPods, driven primarily by iPod Nano and iPod Touch devices, the logical thing for analysts to do would be to project a very healthy stream of iPod related revenue and earnings in the quarter.

Analyst conclusions on iPhone sales also represent the type of growth the company saw in the early years of the iPod rise. Last year's 2Million+ unit number is expected to nearly triple through the combination of in-store activations and iPhone specific gift cards. Corresponding AppStore sales will also be ready to incline in step, thus its safe to say the phone division is on solid ground for 2009. If China ever gets works out, the addressable iPhone market could potentially growth by another 600Million users.

So, all that's left for Apple to do is to prove the new Mac portables are as popular as they've started out being and you've got a company that will spend another conference call giving each other "corporate-speak" high fives, trying to step around analyst typical questions on how Apple bucked all these devastating economic head-winds. Year ago earnings of $1.76/share seemed so far away during the conference call and its accompanying guidance. With these latest analyst reports there is plenty of room for the consensus estimate to move higher.

The Vegas Line stands at $1.46 and I expect it to move to the 1.50-1.60 range as Jolly Saint Nick nears.

Disclosure: Author is long AAPL

Apple eyes Successful Holiday Season with new Mac Notebooks

As per the norm, rumor-mills were ablaze with blurry photos, leaked specs and incredulous claims about Apple's (AAPL) upcoming surprises in the computer space. Just about a month after it refreshed its iPod line for the school and holiday seasons the Mac maker returns to the stage to unveil an entire new line of laptops, with enough bells and whistles and marketing glam to gleam into the eyes of affluent America regardless of those pesky "economic headaches".

Will it be enough to satisfy Investors and bring ever-increasing tight-wallet parents out of the woodwork and into Best Buy (BBY) or Apple retail stores?

The run-down of new products, in short prose will follow, as they'll cleverly be splashed across technology publications all day and likely all week. The important thing however is that Apple is using the rumored "Brick" design process to make cases for the entire laptop line. A process that is able to carve an aluminum case for each laptop out of a block of metal, saving all excess to be reused in the process at later stages, this is in fact not a wasteful process at all. Apple getting high environmental marks for its latest products is also a change for the company over the course of the last couple years. The new laptops also now have glass track-pads without individual buttons. A new feature of today's laptop line is that the glass track-pad acts as a button and introduce more multi-touch capabilities including 4 finger actions. Not to mention the innovation of having its Pro line of laptops driven by not 1 but 2 graphics cards, that can be turned on and off for better battery performance or better hardcore video performance.

But without further delay:
-> MacBook: Original White Model price drop to $999. Apple just barely entering the sub-$1000 market, it may not be enough to convince analysts but the $999 price point is nonetheless an actractive one for the core Apple market demographic and engaging those further beyond it.
-> Aluminum MacBook: In 2 configurations at $1299 and $1599
-> Refreshed MacBook Air: In 2 configurations with spec bumps at $1799 and $2499
-> Aluminum MacBook Pro: Multiple configurations for 15" and 17" models: 15" models in 2 configurations at $1999 and $2499
-> Apple also introduced a new 24" Display for $899

So, now that the current round of rumors may be put to rest, what does the future and the holiday season hold for Apple. By all accounts of the crowd at the notebook event, the reactions to the new laptops was very positive. Will the $999 MacBook continue to be a best-seller or will Apple have to dive deeper into netbook price territory?

It is my belief that Apple's brand has for years developed a premium stigma to it and that the design prowess of the company can not be underestimated. While other computer makers may struggle with economic conditions, putting pressure on margins, Apple's pressure is offset by its current target demographic, which mainly consists of youths with disposable cash and many parents of that youth segment. Apple made big points in its presentation today about its growth in the retail segment of the US and its market share gains across college campuses. This will resonate in the years to come as well as the short term. Of all those feeling the pressure of an economic slowdown the last truly feeling the pinch will be the more affluent and wealthy of which Apple demands a significant amount of technology/gadget attention with its iconic product line of iPods, iPhones and Macs.

That is not to say Apple shares wont feel the pressure, in fact Apple suffered as large a drop as any large tech company over the past month as fear of consumer spending shortages spread throughout markets. With Apple the volatility comes with the secrecy and the cult-like following. But markets, as forward-looking as they are generally aren't wrong for very long.

Apple is expected to reveal quarterly results on October 21st following a quarter mixed in terms of news coverage, events and economic activity. While it is a big back to school season for Apple at this time of year, analysts and Investors are fearful that the economic uncertainty facing the US could have had a significant impact on casual spending. Apple has proven to be recession-proof in the past but the company will have to prove itself again with results, and prove itself yet again with guidance that doesn't scare off the institutional buyers.

Till results are revealed, Analysts, Investors and Fan-Boys have a brand new slate of Apple laptops to go and check out at Apple stores all across the country.

Disclosure: Author owns AAPL.

Apple in the Bargain Bin around $100

Tumultuous turmoil in the marketplace has left Traders and Investors on a selling spree as the US Financial crisis spreads through the credit markets and begins to lurk in the nooks and crannies of Main Street economy. While several incredibly leveraged and debt-ridden names deserve to be under the knife of their own implosion other great companies are just being swept into the sandstorm of negativity. Apple (AAPL) is surely one of those names!

Granted, Apple was and may still be a high P/E stock and as markets contracted of late, Apple's multiples have moved in kind, despite the company's growth outlook. The supplementing downgrades near this latest bottom offer a hope that this is a bargain basement price for this still solid growth company. When analysts start piling up the downgrades like Morgan Stanley and RBC did against Apple yesterday, during the Market's worse point loss, its time to reconsider that this may in fact be a bottom.

Coupled with the White House push to get some sort of Bailout Plan passed through Congress and you've got a recipe for a potentially big turnaround. Let's take a quick look at the Apple "downgrades". The RBC analyst cut his Mac sales estimate from 3.0Million to 2.9Million units, which all things considered is still a stunning sales pace when a year ago the company shipped just over 2.1Million Macs. iPhones sales estimates, well RBC actually rose those from 5Million units to 6Million units in the quarter.

As the 3rd iPhone rollout begins, which in early October should include Russia there is very little, if any, doubt now that Apple will blow past its own goal of selling 10Million iPhones this year. It's also poised to be a 10Million Mac year, which of course will be a record for the company, not to mention the 10+Million iPods shipped every 3 months. With Apple holding an iPod event earlier this month to announce new Nanos and reduced pricing on iPod Touches the company wants to place itself within a comfortable range of consumer spending, even as that spending starts to deteriorate.

While its true a new computer favourite with consumers is the "net-book", the small screened sub $500 machines for the budget-conscious shopper on the go, but even as Apple gets more mainstream with its computer business it is still a premium niche design brand. Tiffany's doesn't suddenly start selling cubics does it? Brand recognition and popularity especially among the youth market is critical to businesses in a consumer downturn and Apple has it. All signs earlier in the quarter have pointed to a record back-to-school shopping season despite economic perils. Not to mention Apple's own claims of margin-cutting new devices coming soon, which likely include either lower priced entry laptops or the ever-rumored Tablet device.

The iPhone is the next big growth phase for Apple, as iPod users upgrade/replace existing iPods with new models or iPhones, the company will continue to see the incremental revenue from not only those device sales, their booming iTunes online music business, but now also from the sharply growing Application download business. The latter of which, providing $30Million in revenue on its first 100Million downloads in the first 2 months of operation.

As Apple's quarter comes to a close, earnings are right around the corner and as always analysts will be looking towards guidance more than anything. This is where Apple's biggest problem may be. Given the current economic climate Apple's typical lowered and comfortable guidance may hurt more now than it would help later. The important thing to remember with Apple's upcoming results is that its future is sound, with 10s of Billions in cash and deferred revenue from iPhone sales the company isn't looking at any debt, has the flexibility to still innovate and negotiate tough economic climates, especially as it captures the press in another "Steve-note" later in October to unveil new lowered price MacBook and MacBook Pro laptops (as the rumors go).

But consider this. After this quarter, cumulative iPhone sales will likely be close to 11Million units, and at $400/device on average (pre-subsidy) that's close to $4.5Billion in revenue of which an 8th will show up on this quarter's books, $550Million. When you consider a year ago Apple had total sales of $6.2Billion for the quarter, the iPhone piece is becoming ever more significant. And when Investors think about the additional $4Billion that will be padding Apple's cash horde in the upcoming quarters it will certainly make them breathe easy even in the most crimped economic spending scenarios.

Apple's cheap, it's a steal, and there are very real catalysts in the next few months (Earnings, Mac Event, Christmas Sales, MacWorld, Christmas earnings). This is a stock that could climb 50-60% from here in the next half-year.

Disclosure: Author is long AAPL

Apple plays the Conversative card, sets Record June Quarter, shares go on sale

Amongst the iPhone 3G euphoria surrounding Apple (AAPL) these days is the bread and butter Computer and iPod business lines. Today, those lesser hyped money-machines were in the spotlight as the Cupertino Computer underdog posted an impressive and record breaking quarter.

Results coming across the wires placed Apple with $1.19/share in profits from $7.46Billion in revenue. Considering the street was averaged in at $1.07/share and $7.36Billion across the top line, those numbers represent a dramatic earnings beat. On the sales side, the company sold a whisker-shy of 2.5Million Mac computers, over 11Million iPods and over 700Thousand iPhones. All figures above or right at Wall St. predicted levels.

The problem with Apple, as always, is the conservative guidance game the company plays with analysts and investors. The Street had earnings for next quarter pegged at $1.24 on Revenue over $8.3Billion, pretty ambitious but certainly achievable as the popular Back To School computer shopping season is in full force, as well as the successful launch of the iPhone 3G. Apple's story for next quarter was incredibly conservative with earnings of about $1.00 on revenue of $7.8Billion.

Considering 3 months ago at this time Apple was saying the just ended quarter would yield profits around $1.00, which they have now beat by 20%, one would think the analyst community would get used to the, as some have coined, "sand-bagging". Not so, Apple shares took an after hours tumble of $15/share after the results were posted.

With the company having such an extraordinary growth trajectory, why the conservative guidance? Well for one, reeling in expectations is a gigantic undertaking when dealing with a company of Apple's substance, style and mystique. The company shroud of secrecy with new products, product refreshes, and partnerships adds to that mystique and as the general public feels the excitement of new Apple products, or Apple success, so too does the Wall St. community.

From time to time, these expectations have to be brought back to reality. The current quarter saw Apple deliver 44% year over year revenue growth and 30% year over year profit growth.
Expectations for next quarter currently expect growth of about 35% revenue and 23% profit. By creating a situation where expectations curb themselves into the 30%-20% zone, Apple will be poised to once again play the old "under-promise and over-deliver" poker hand.

Given that it's the popular back-to-school shopping season, Apple has year after year went further and further with its iPod giveaways tied to new Mac purchases. This year was the biggest yet, as the company is including iPod Touch devices with the promotion. These giveaways aren't cheap and can put pressure on margins. However, last year at the time the company was also doing its "biggest back to school promotion ever" and somehow seemed to land on its feet and blow away analyst profit expectations.

The bottom line here is, that once again Investors have a chance to pick up Apple at a discount. Considering with this most recent report, the company has earned $5.12/share over the last 12 months and is looking ahead to growth rates of about 30%+ for the next 12 months. This sets a P/E at current after hours levels of 30. Perhaps that can be considered high but with a Price to Earnings Growth ratio under 1 and growth continuing in the Mac and iPhone segments of Apple's business the future does seem bright, even if current economic turbulences keep Apple from all time share price highs.

In the $150s, and looking out 1-to-2 years, it's a steal, plain and simple.

Disclosure: Author is long AAPL

Apple rides Strong Mac Computer Sales to earnings beat

Mac, iPod and iPhone maker Apple (AAPL) reported a very strong quarter for the 3 months ended March. The sheer numbers were staggering: $1.16/share in profit on $7.5Billion in revenues. This compares with analyst expectations of $1.06/share profits on $6.9Billion in revenue.

Apple beat on both the top and bottom line but Investors aren't yet sure where to go given guidance and a wavering US economy. Apple showed its ability to grow in tougher economic times due to their innovative products, brand value and successful retail integration. A year ago Apple earned $0.87, which represents year-over-year 33% growth on an EPS basis.

The big deal here, over 50% growth in Mac sales to almost 2.3Million units in the quarter. The quarter also included flat iPod unit sales of 10.6Million and rather strong iPhone sales of 1.7Million units. Margins were good for the company, albeit lower year-over-year, as memory prices continued to hit lows. The company guided for earnings of $1.00/share for the next quarter amid reassurances component costs will continue to be favourable.

News on the iPhone front? All those shortages we've been hearing about that led to speculation of an upcoming 3G model sooner as opposed to later? Seemed to be just that, shortages, due to higher than expected demand. Of course unlocking is a big deal and while the company is using the unlocking argument to peg worldwide demand, the sheer percentage of iPhones being bought to be unlocked has to be very high. While no numbers are given by the company, some outside analysis and reports have pegged unlocked devices as high as 30% of units.

The focus for analysts for this quarter were Macs and iPhones, and according to the earnings report, growth rates for both revenue streams are very high. Mac sales of almost 2.3Million units is very strong, coming close to the record sales number posted by the company for the previous Holiday quarter. Sales growth rates in all regions are strong and once again sales of Macs in Apple's retail stores, 50% of the time, went to first time Mac buyers. That old faithful Halo Effect at work once again.

On the iPhone front, the company has added some complications to revenue going forward due to accounting issues. The company will not recognize any revenue from new iPhone sales from after the iPhone 2.0 Software upgrade announcement until the software is delivered. Essentially meaning next quarter numbers for the company will include ZERO dollars in new iPhone revenue since the company expects to release the software near the end of June. Revenue that is deferred from previous iPhones sales will be included (as of the latest quarter deferred revenue stood at $1.9Billion). This will put some pressure on margins and the top line numbers when doing comparisons, but will add an additional bump to the following several quarters. The company will recognize this gap window on an adjusted basis for the remaining 2 years as with normal iPhone purchases. The company reiterated its internal goal of selling 10Million units in 2008 and their strategy of being in Asia this year.

On the retail side, Apple continues to be the best revenue per square foot retailer in the world. The company plans to open several high profile stores in the remainder of the year, and its "Store within a Store" concept and increased presence at Best Buy (BBY) stores has grown to 400 locations, with plans to expand into 600 as the end of the summer.

When all is said and done, it is another fantastic quarter for the Electronics maker. Analysts and traders are still trying to figure out where to go from here considering Apple's stock has grown from $120 to $160 in the past few weeks. However, without a shadow of a doubt, this company is continuing to grow, and grow dramatically, has some very exciting events and products in the pipeline, and has the potential to significantly expand market share in the Computer and Cellphone business segments. All signs that can be used to justify further share price gains throughout the year.

Oh and the company added about $1Billion in sheer cash, putting its war chest at about $19.5Billion. Not too shabby a rainy day fund I'd say.

Disclosure: Author owns AAPL

Update: April 24, 2008

Apple Shares Slide as Conservative Guidance bests Record Results

The hype machine that is Apple (AAPL) has run into a series of Investor stumbling blocks of late. Not only is the degradation of the US economy foiling its plans for personal electronic revolution, the company has had to deal with an increased footprint, Greenpeace complaints, Product Leaks, and somewhat unrealistic expectations of itself and its results! And all the while, maintaining record revenues and profits. The Dec 07 quarter was no exception as Apple delivered earnings of $1.76/share.

Apple's own guidance, always thought to be conservative, for the Christmas quarter was seemingly aggresive in the $1.40/share range, while The Street pegged earnings in the $1.50s. Fast forward to right before earnings and The Street's consensus estimate had jumped to $1.62/share with whispers of Apple delivering close to $1.80. Consider that one year ago Apple delivered $1.14/share and their own guidance was already close to a 30% rate of growth year over year. Those ever ambitious analysts on The Street were expecting over 40% year over year growth.

So, broken down and battered by recession fears Apple delivered $1.76/share, representing a 54% year over year profit growth rate! Remarkable! With the sales breakdown producing even more records for the company. Revenues gained 35% year over year to $9.6Billion.

Over 2.3 Million Mac Computers sold
Over 22.1 Million iPods sold
Over 2.3 Million iPhones sold

And this just begins to scratch the surface of the company's historic and record setting quarter. Now analysts had their own ideas and Apple matched, or bested all of them except for the numbers of iPod units sold, however, iPod revenue grew much faster than unit sales did (17% vs 5%), meaning the product shift had begun towards more expensive and higher margin models. Analysts were expecting higher unit sales in the neighbourhood of 23-25Million for Apple's very successful music player business.

Good old trusty Apple CFO Peter Oppenheimer gave the traditional spiel of "We give guidance we have reasonable confidence in achieving" just like every other quarter but analysts were taken aback at how soft the next quarter may be for Apple. Is the economic slowdown in the US going to effect this high profile firm this dramatically? Apple's guidance of $0.94/share looks soft on the outside, considering it reported $0.87/share a year ago at that time. How quickly analysts forget that Apple's guidance a year ago was around the $0.60/share mark. But, for Traders $0.87/share represents only an 8% year over year increase in profit! And this sent the stock spiraling after hours. Apple, which had found itself at record levels above $200, just weeks ago, has seen shares fall to the mid $155 range at closing, and further down to below $140 after the results came in.

The stock took an 11% hit to $138 after results and guidance were announced. This is too much, even in a turbulent economic picture such as the one that's painted for the United States. Apple's trailing earnings with this result stand at $4.56 or a 30 P/E. For growth of 54% year over year, this is astonishingly cheap! But don't jump on the trigger just because of that. Even though the Price-Earnings Growth multiple looks very attractive, it doesn't paint the entire economic picture. If recession is as likely as The Street makes it out to be, Apple could very well fall to a PEG of 0.5, from its current 0.55. Meaning that if next quarter's growth continues near 50% (regardless of conservative guidance) Apple could trade at a P/E of 25 given current economic conditions. On earnings of $5/share that would value Apple at $125. This I would see as an absolute bottom for the stock of this successful company.

Looking at the big picture, iPhone growth is an area where Apple will continue to see acceleration in earnings, due to its carrier revenue deals, and these will become a major part of earnings in 2008 and 2009. As the installed base of iPhone users grow, the recurring revenue Apple generates will follow suit, in a major way. Monthly payments to Apple from each of its carrier partners will become the big earnings story for the stock, along with revamped and redesigned entries to its popular Notebook Computer line.

I summarized where I think the bottom could be, but what about the bullish side of Apple. Well, once Wall Street gets its head around the conservative guidance game once again, and CEO Steve Jobs brings the Press together for a couple product events (New Laptops, A Tablet, iPhone SDK, WWDC and more) the Apple story will be once again first and foremost on Technology Investor's radars and the company can regain a P/E ratio of 40 going into the end of 2008. The end result in this case, if the US economy finds its footing and can sharpen growth expectations going forward, is a company continuing its string of successes over the past few years. Earning close to $6/share in FY2008 and capping the year at over $230!

So with the Bull and Bear cases in hand, it is up to Investors and the US economy to decide where Apple will be taken for a ride next!

Disclosure: Author is long AAPL

Apple shares pass $200, A new Record

Apple (AAPL), is also enjoying a strong holiday as iPods are as popular as ever and the Mac computers continue to well outpace the computer industry in terms of growth, and that's without even mentioning the other "hottest gadget of the year" iPhone. Apple in fact is one of the main culprits of Amazon's (AMZN) sales success as Mac computers and iPod line ups flock the electronics best sellers lists.

Whispers about sales are starting to trickle in pegging iPhone sales around 5Million units for the year, well above of most analysts 3-4Million estimates. Thanks in part to initial success with European launches and the $200 price cut that the device saw earlier in the fall. Considering that Apple's goals were to sell 10Million units by the end of next year it appears the company, for all intensive purposes, is well on its way. And its only the beginning as the device is officially on sale in only 4 countries. Once confirmed news of iPhone deals in China, Japan and the rest of Europe hits, the early sales goals will, in retrospect seem completely low-balled.

Apple's forgotten, and not so well selling device, AppleTV seems to be in the spotlight again as analysts expect an upgrade to the unit as well as the content available for it with iTunes. Apple's famous MacWorld Expo is just on the horizon and it is this event that usually brings with it product introductions, company metrics and newly minted partnerships. The hope is that Apple will bring aboard more movie studios to iTunes and perhaps expand the sales model to also include rentals. Reports coming in suggest that Fox is the first to sign on for the "rental" model and that this will be announced at the Expo. This feature should give the AppleTV some new life and perhaps force an upgrade, including the long wanted HD content in iTunes. Having Rentals and HD Video in the iTunes store come MacWorld would be 2 very big steps in the right direction to not only Apple but the entertainment giants as well.

Digital Rentals are a market that hasn't taken off yet, with many players attempting to make it work but no one dominating. Microsoft, through Xbox is trying, Amazon is trying, NetFlix and Blockbuster were trying too. The verdict, nothing really works well and each platform simply isn't wide enough. But iTunes, with its Billions of downloaded songs, and 100 million downloaded videos may just be that massive machine to get the ball rolling. Much as the demise of the CD caught the music industry off guard the last year or 2, I see a similar fate coming to DVD, with everything going digital. It doesn't help that the next gen HD disc format is in a war that is dividing consumers and studios either. So, should I get a Blu Ray player? An HD DVD player? a combo player just in case?

Too many questions, no real answer, or could there be? 120Million iPods have been sold, iTunes is seemingly on the majority on computers already, HD rentals would take off on this platform within 12-18 months pushing next gen disc formats aside as Digital content truly becomes King, Broadband expansion will make downloads quicker and that hurdle of "downloading time" will be a thing of the past.

When this rental announcement becomes official, more power to the Studios who stepped up, and didn't try to strong arm the one dominant player in the online Music and Movie sales business.

So is there still upside to the Apple story? Yes, but time frames have to be adjusted now. Forward P/E sits in the low 30s and the company is nearing it's marquee event, and its undoubtedly strongest quarterly report in history. So what's that mean for the investor? It means estimates are still too low and price targets will still continue to climb. Remember current Apple estimates only include 10-12Million iPhone sales by the end of 2008, no real clear idea of the revenue sharing model that will become a monthly cash cow for the company, and absolutely no AppleTV income, as the product hasn't sold well yet. Yes iPod growth is slowing, to only about 20% year over year, but Macs are surging to more than make up for that P/E ratio softening.

Bottom line, Apple at $200 is still a very interesting long term story, dips are great opportunities to accumulate, and this one will likely beat the market once again, by this time next year.

Disclosure: Author is long AAPL

Amazon's Strongest Holiday Ever, Company on fire, Stock still Pricey

A couple high profile Technology names have been making waves over the last couple of days. Amazon (AMZN) and Apple Inc. (AAPL) have both been in the news for the better, with the former seeing record retail sales, and the latter hitting record highs. Christmas has been very good for web-retailer Amazon, as it came out saying that it in fact had its biggest and strongest sales season ever.

For a company that's been an Internet giant for more than 10 years, it definitely seems like Amazon has hit a new stride and is once again riding an optimistic wave. The numbers though are just staggering, but more on that in a second. Yes more and more shoppers are comfortable online, yes there's more product available online than ever, yes Internet penetration is rolling out further worldwide, but still, Amazon's surge in shopping can majorly be credited to its own internal innovations, and with that the simplest form of advertising, word of mouth.

The busiest day this year saw more than 5.4Million items being bought. Highlighted specifically by strong demand for Nintendo's popular Wii game console, the refreshed line of Apple's iPods and Mac computers, GPS systems and HDTVs. Comparing to last year, this was about a 35% increase! Now yes this is a "peak" numeric, but I think it is safe to say that Amazon's on the retail uptrend, rather than just simply enjoying seasonal consumer increases. Even the company's own Kindle e-book reader is reportedly selling well in its early stages. It is news like this that will really boost the company back to its triple digit share price highs, as the retail business is very low margin while the electronics game is something else entirely.

A $40Billion market cap based on a triple digit P/E ratio is still too rich for my liking but the strongest companies have a knack for slowly molding from inflated P/Es and before you know it they even seem cheap. To say that Amazon is growing again would be a tragic understatement, the company is better than its ever been, now if only they can judge that Wall Street expectations game as well as ever, shareholders can rejoice alongside with staff.

Disclosure: Author does not own AMZN

Amazon unveils Kindle E-Book Reader, Will it Hit with Customers and Shareholders?

Amazon (AMZN) has seen a resurgence on Wall Street this year as the company has tried to change the way it does business with an influx of technology spending. Financial results has been excellent but technology results have been mixed, with the difficult to manage and use Unbox Video Service and the new and promising MP3 store. The latest offering from the Tech department at Amazon in the Kindle E-Book Reader.

It's official unveiling was today, but technology blogs and news sites have been after the device for sometime. Popular spots; Engadget (Link) and Gizmodo (Link) were on top of this latest gadget all morning. CEO Jeff Bezos claimed that he hoped Kindle would do for books what the iPod did for music online. Amazon shareholders certainly hope he's right. The stock has been bid up considerably this year but has since fallen over 20% from highs of $101/share. With a share price just under $80 the company seems like a potential strong buy, but even these discounted levels are coming from loftier highs. Amazon sports a P/E of over 90 and a trailing P/E of over 50. Even poster children for growth, Apple (AAPL) and Google (GOOG), sport ratios that are half of Amazon's.

If Kindle becomes even half of what iPod is, shareholders will have plenty to cheer about, but that is certainly a big IF. The Kindle sports some very nice features, looks small and sleek enough to justify a slight Cool factor. It's obvious Amazon techies spent a long time making sure the thing didn't look like it was beaten with an ugly stick while they shoved all sorts of hardware inside. The Kindle in essence is an electronic book reader, and any one with any sort of personal library could use one on the go for reading. So first let's take a look at the positives.

Amazon's got the content (in this case books) to support this venture, and in time I'm sure a vast majority of the Amazon library will be available for purchase for $9.99 or less. The device works with all sorts of formats but converts them to Amazon's proprietary reader format. The battery will last about 30 hours and a consumer will be able to automatically get subscribed newspapers and blogs sent to the device. That's right, the bright minds at Amazon decided to make this a wireless device that works on the cellular network for free through Amazon's covert WhisperNet. No word yet if WhisperNet is self-aware and may malfunction like its more famous cousin SkyNet. All jokes aside, the technology here is a big selling point. EVDO based cellular Internet will allow users to download books, newspapers and blogs that they have paid for, automatically and without a computer connection. So you're not killing your eyes staring at a screen the whole time the Kindle sports an e-ink screen that isn't back-lit to make reading easier. A definite plus there.

Now some negatives. It's pricey at $400 but compares relatively well to the Sony (SNE) E-Book Reader. Stylistics is a subjective game and rarely are devices or products uniformly praised for their elegance. So there's a fair chance that the public will think it is in fact a pointy, clunky ugly device, but I disagree. By no means is the thing gorgeous but it isn't bad, even if the slanted keyboard keys seem quite awkward. It's difficult to say at this point how the distribution and downloading of content will work but horror and wonder stories should trickle in as the device gets into the hands of the consumers. The real problem I see with the claim that the Kindle will be the "iPod for books" is the fact that one's personal library is as sacred as anything else in the household. The book-reading and book-owning population loves to fill shelves with books as it instills a sense of pride much more than a music collection does.

So the average song is somewhere between 3 and 4 minutes while the average book 300-400 pages. Reading a page a minute requires more than 5 hours of reading for the average book. Music is simply consumed and changed much faster than books. While carrying an entire CD collection during a trip makes little sense, carrying one book isn't all that bad. You can't exactly switch the Kindle to random and read pages from one book than another. Also, it's a well known fact that every iPod is not filled with music from the iTunes store. Majority of this music comes from CD collections that users had purchased throughout the years than ripped to the device for portable use. This process is simply not feasible with books, for obvious reasons, so to be able to take your favourites with you on the Kindle you'll have to buy them again digitally. Something I'm guessing most consumers will not want to do.

While I have serious doubts about the Kindle becoming some kind of iconic reading device, it is a very strong step in the right direction from a company that is also turning itself in that direction. While I think shares are overpriced today, a slide back towards $70 or under would make things very attractive considering there is upside to analysts estimates of $1.78/share in earnings for next year. Provided the economy in the United States stays relatively strong, and is not brought to its knees by the credit crisis and weakening dollar I would have no problem paying 35 times 2008 earnings, with upside to nearly $2/share, for Amazon and its future growth prospects.

To be as ubiquitous as the iPod, the Kindle has a long way to go but the youth of today are living in a digital age and the old adage of being able to hold on to, and feel what you buy is slowing fading away. Content will be king, content will be digital, and Amazon hopes that content will be on your Kindle.

Disclosure: Author currently does not own AMZN

Apple does far more than just Shine with another Record Blowout Earnings Number

Not to be outdone by its Technology peers in the "Blowout earnings" game, Apple (AAPL) came through with a record breaking September quarter. Going against history Apple also guided higher than Wall Street anticipated for the Christmas quarter. The earnings of $1.01/share and the guidance of $1.42/share for next quarter led the stock to gain 7% after hours.

There are blowout earnings and there are BLOWOUT earnings and Apple's quarter certainly falls into the 2nd of the 2 categories. Apple's earnings of $1.01/share beat the street expectations of $0.85/share and Revenue of $6.22Billion was well ahead of the expected $6.02Billion. The company ends its Fiscal Year this quarter and for FY07 the company did over $24Billion in revenue. This first time in its history having a FY with revenue over $20Billion. Guidance from the company surprised analysts as it was very bullish compared with Apple's historic trends.

Apple's typical conservative guidance due to "less favourable commodity conditions" and "product transitions" really was a sly practice for past quarters but I believe the company knows the Street is onto its game and is now ready to step up to the plate and concede that they are in really good shape, regardless of economic conditions, to capitalize on an excellent product mix and unmatched company momentum.

The Mac line of computers was very strong, making record sales during the quarter, and culminating with 2.16Million units sold. The music player iPod line sold 10.2 Million units and the company added sales of almost 1.2Million iPhones. The Phone/Media revolutionary device was stronger than even very bullish analysts had expected. It was clear that the decision by the company to cut the price of the device by $200 late in the quarter helped to spur furthur additional sales. Apple cited a favourable tax rate, favourable component costs, a weaker US currency and good seasonal trends, as all attributing to the record results.

Even with a warning to analysts that some of these trends will become more normalized the company still guided 3 cents higher than the Street had expected. If Apple sticks to its previous trends of posting a guidance number that it is very confident in making than Investors everywhere should feel almost euphoric as to what an earnings result the company could be in for come January. As Apple's stock has rallied to $174 before the results the company growth metric were expanding almost into overvalued territory. Forward P/E and trailing P/E ratios were both inflating and PEG numbers were getting higher than many technology competitors.

Apple's trailing ratios will come down slightly based on Monday's closing price. At $174 the P/E stood at 49 with trailing earnings of $3.55/share. After the results trailing P/E stands at 44 on $3.94/share in earnings. With the stock up to $187 in after hours trading the P/E climbs back up to 47.5. Investors are clearly bullish about growth in all sectors for Apple. The forward guidance for the January quarter puts trailing earnings at $4.22/share. At current trailing P/E ratios that puts a target price of $198 on shares going into January. It's no surprise that analysts have seemingly stumbled over each other of late increasing their own price targets for Apple stock. While all the bullish sentiment can be enamouring the realist trader must re-think future possibilities. Apple hitting $200 by January of next year represents about a 7% gain, and for a stock that has seen a 20% rise in 1 month and a 90% rise in 6 months, that's actually slowing momentum. Keep in mind I am warning momentum traders not long term investors. The belief in Apple's continued execution has benefited investors tremendously over the last couple of years and with this product mix that is almost assured to continue. As such any profit taking dips should be well welcomed by the ever growing base of Apple believers.

With the continued growth successes in the Mac computer line, iPods fresh and ready for Christmas and the iPhone just coming into its own, the future is still very bright for Apple as a company and as a stock. With these positive results and bullish forecasts there seems to be little resistance in Apple's path to $200 and beyond.

Disclosure: Author is long AAPL

Earnings Preview: Week of Oct 22nd

To say the Markets took a breather Friday would be a grave understatement. The selling was balanced, on heavy volume and carried on throughout the day. The major indices; Dow Jones, Nasdaq, and S&P were all lower about 2.5%. Earnings season continues this week and more major companies will have the spotlight on them.

The week kicks off Monday with Computer and iPod/iPhone maker Apple Inc. (AAPL) reporting what is wildly expected to be another blowout earnings number for Technology stocks. Drug makers will also see action this week as Merck (MRK) and Schering-Plough (SGP) report Monday as well with Amgen (AMGN) and GlaxoSmithKline (GSK) set to follow later in the week.

AT&T (T) looks to capitalize on the popular iPhone as it highlights a busy Tuesday and software giant Microsoft (MSFT) headlines another busy earnings Thursday. Aerospace will feature also Lockheed Martin (LMT) reports as does Boeing (BA)

Investors and Traders will be looking for earnings to set a positive direction in order to drive further gains well into the Fall. Friday's pause was seen as healthy profit taking with a very cautious undertone. If the general earnings trend continues to be above-expectations than the market should have little resistance upwards, possibly no matter what the Fed does at its next Interest Rate decision.

Apple unveils Exciting but Expected iPod revamp, Stock suffers

The consumer electronics world held its collective breath today as Steve Jobs took the stage to show off Apple's (AAPL) new line of iPods for the holiday season. It's been almost 2 years since a total redesign of the flagship iPod, so most were expecting dramatic changes.

However, Jobs and Apple already changed the world this year! It was called the iPhone. A revolutionary device that ushered in a new era of interfacing, technology, entertainment and mobile communications. To think the company could pull another wonder out of its hat so soon was a stretch. But try they did and the results were astounding, but due to iPhone fever over the past 8 months, expected.

The focus on video and portable video is very apparent in the new line of iPods as the popular iPod Nano has become shorter, wider and sports a 2 inch screen capable of playing videos. The existing iPod received an interface refresh, was branded as iPod Classic and got a bump from 30GB & 80GB to 80GB & 160GB varieties. Perfect for that consumer going on vacation for a month with a load of music and video to hold on the go. The big announcement awaited the new flagship iPod and it came in the flavour of the now called iPod Touch, which incorporates many technologies seen first in the iPhone but without the mobile phone features.

The iPod Touch comes in 8GB & 16GB varieties and is built on the same Mac OS X platform that iPhone users are now familiar with. The most exciting part of iPod Touch is that it keeps the iPhone's wifi capabilities and packs the Safari Wed Browser. This allows iPod users the ability to connect to wifi networks and surf the Internet with their devices. Truly a remarkable thing, but in perspective analysts and investors have seen it before with the introduction of the iPhone 8 months prior.

Ringtones for the iPhone! Another eagerly anticipated feature that is now a reality. With the next version of iTunes, users will be able to use selected iTunes tracks and pay an additional $0.99 to chop up a 30 second portion into a ringtone for use with the iPhone. A great feature, all in all cheaper than other ringtones but nothing unexpected or truly groundbreaking here.

Now the news that's totally new. With the new iPod Touch comes the Wifi-based iTunes music store, which allows iPodders to buy music on the go through wireless networks. These tunes will sync up to their computers seamlessly when the iPod is reconnected to the computer at a future date. A deal with Starbucks was announced also, but seemed to confuse as to what "Free wifi" really means within Starbucks Coffee Houses. The assumption is that iPod & iPhone users (iTunes wifi is coming as an iPhone update soon) will be able to surf the iTunes music store for free, featuring specific Starbucks Music content, but would have to pay for other wireless surfing when sitting at a Starbucks.

Investors headed for the exits in excessive profit taking. Apple's fall from 52-week highs with the market led to a bottom in the 100s that begot a rise to $145 over the last weeks that was built on the hype that this event would bring more revolutionary products. Showcasing expected innovations did not appease the hype machine. Shares fell 5% to around 136 even as Apple announced a whopping 33% price cut for the 8GB iPhone (from $599 to $399). Perhaps investors saw this as a sign that demand was not as brisk as anticipated but I view it as Apple wanting to have a truly remarkable and record breaking Christmas shopping season as its lineup of media and communications devices fit neatly in market segments. With the iPhone price cut and the new iPod Touch model pricing of 8GB for $299 and 16GB for $399 the company has 2 flagship products that are sure to succeed over the holidays.

iPod sales broke 20Million units last holiday season and are expected to jump close to 25Million this holiday season. The injection of new iPods can only help the company reach these lofty expectations. The kicker still is the growth in video downloads as almost 100Million TV Shows have been downloaded to date. However only the flagship Video iPod had those capabilities while the most popular Nano models did not. This year that changes drastically and the full iPod line, with the expectation of the screen-less Shuffle, is now able to watch downloaded videos. Gonna be a rough season in that market for NBC if they can't make amends with Apple over iTunes contract negotiations.

While Apple still has some downside risk given the expected product announcements I believe its limited and only in the short term. The back to school computer season is reportedly very strong and the holidays appear to be ready to break records again as the company shifts its product line to video-centric Mac OS X based devices. The iPhone price cut is sure to spur sales and its only a matter of time until deals are crafted completely in Europe. Apple has so far this summer gone in line with general market trends and if fears resume from the credit crisis the stock will likely follow south. But for keen investors the opportunity is here again as Apple crafts new short term bottoms following this announcement. This opportunity is too good to pass up given company prospects going forward.

Disclosure: Author is long AAPL

Universal Readies DRM-Free Music, Snubs iTunes for Real Networks et al

Universal Music Group, the music giant owned by Vivendi (EPA: VIV), has announced a testing phase of an online music plan that will see the company sell digital tracks without Digital Rights Management (DRM).

The debate over DRM has raged since the inception of digital music and the growth of Apple (AAPL) and its iTunes Store. Even Apple's head Steve Jobs wrote a letter discussing DRM on Apple's website (Link). Apple's first partner into the DRM-free world was EMI (LON:EMI) and together they launched iTunes Plus. An additional service for music that gave customers better quality tracks that were free of restrictions. These tracks could be played, burned or used anywhere, virtually on any device.

Universal has shunned the online music juggernaut that is iTunes and its 70+% market share. It has chosen to partner with Real Networks (RNWK), which has its well known Rhapsody service starting to gain some momentum in the space. The stock jumped off its 52-week low today finishing up 7% on the news. Before we jump on the Rhapsody bandwagon, investors need to consider that this 6-month Universal test is available also to online stores run by Best Buy, Wal-Mart, Amazon and Google. While some of these big net names don't exactly offer complete online music services to consumers you can see that the biggest name is missing. Apple Inc.

Contract renewal negotiations fell apart between Universal and Apple some time ago and it was clear then that Apple's firm demands were not met with smiles. Reportedly during the talks, Universal wanted changes to pricing and Apple wanted to keep the same pricing simplicity and get rid of DRM completely. It seems Vivendi's Universal unit holds a big grudge. However, if DRM-free music is truly the wave of the future it wont be long before iTunes is back in Universal's good graces. With CD sales down sharply quarter after quarter and digital sales, although growing, failing to compensate, its only a matter of time before shareholders become unhappy with the fact that the biggest music distributer in the world excluded the most powerful online music store in the test.

The question investors have to ask now is whether the 6 month test period is enough for any competing service, such as Real's Rhapsody, to gain any traction against iTunes simply because of DRM-free music? The same songs will still be available through iTunes just packaged with digital rights management. Will this be enough to lure people away from the iTunes store and into competitor online music stores, where they can buy individual songs, put them back into the iTunes media management software and load them onto their iPods? Based on market trends it doesn't appear very likely.

iTunes music sales have always been a low margin business for Apple as its been said that of each $0.99 track almost $0.70 goes to the record label and the rest covers network and advertising costs. What Apple's profit machine feeds off of is sales of iPods and Mac Computers. So for Apple shareholders is this a big deal? Well, yes and no. It isn't a big deal being shut out of the DRM-free test by Universal, however if this strains the company relationships further and Universal decides to pull songs from iTunes that could provide a significant blow to Apple's music business. Universal does sell about 1/4th of the world's music.

Anything Apple loses in the online music business will most notably be picked up by Real's Rhapsody, which would have a positive effect on shares of Real Networks. However, the online music business is still very low margin and Real as a stock I would not recommend based on this DRM-free test alone.

The music trends are clearly forming to a purely digital age with freedom and sharing being at the forefront of consumer minds. With that will come more DRM-free offerings, which will spur further music player sales. The product everyone seems to still want is the iPod and the company making that particular gadget is none other than Apple. Those executives at Universal better start to mend fences soon because not working with Apple in online music is a severe mistake, with the iPod still on the consciousness of virtually every music consumer on the planet.

Disclosure: Author is long AAPL