Apple
(AAPL)
has enjoyed a great run, so investors could be forgiven for wondering if this name is getting overdone. But in my view, new product introductions and the potential for better-than-expected results in the current quarter should drive Apple shares even higher than current levels.
With a little more than a month to go before the Macworld Conference and Expo, speculation is building about what new products and services Apple will introduce as part of the Jan. 15 keynote by CEO Steve Jobs. Over the last several years, Apple has used this event as a stage from which to announce new products, as it did last January when it announced both the iPhone and Apple TV.
There have been several data points to suggest that more likely than not, those products -- especially the 3G iPhone -- would result in upward revisions to Street expectations and drive the stock higher.
The 3G iPhone and either a repositioned iPhone or an entry-level model would bring Apple from having one product in this line to two or three, and that would probably make the 10 million unit forecast for iPhones conservative. Layer on the incremental revenue and profit from data services paid to Apple by the operators, and you have a positive for the bottom line -- and subsequently, the shares.
Possible New Products
Internet columns, news stories and other chatter suggest that the new products announced at Macworld could include:
A sub-notebook that would be 50% thinner that the current MacBook Pro and which would NAND flash memory over a hard drive. Speculation is running high on this idea. Such a notebook would fill a hole in the company's product portfolio.
A 3G iPhone that would be on sale by late May or early June. Comments by
AT&T
(T)
CEO Randall Stephenson in late November hinted rather strongly that a 3G iPhone would be offered in 2008.
I wrote in
mid-October that one of the issues with the iPhone is that it is currently relegated to AT&T's relatively slow EDGE network. With 3G chipset technology having matured over the last year -- see product announcements from
Broadcom
(BRCM)
and others -- and with further improvements likely, a more robust battery life that can live up to consumer expectations is likely.
AT&T's 3G wireless network, currently deployed in 170 metropolitan markets, uses UMTS/HSDPA technology. According to AT&T, that network can provide download speeds between 400 Kbps and 700 Kbps with bursts to more than 1 Mbps, which would put it on par with
Verizon
(VZ)
Wireless' current EV-DO network. Aside from helping with demand in the U.S., a 3G iPhone would likely help drive demand in Europe as well.
An entry-level iPhone. While talk of such a product is circulating, this could take the form of just another price cut for the current iPhone model. Such a cut could drive incremental demand.
But I believe Apple will need to broaden its product portfolio and eventually address the entry-level market and add a mid-priced product as well. The current iPhone does and a potential 3G iPhone would address the high-end market. This should be an easy lesson to learn after watching companies like
Palm
(PALM)
and
Research In Motion
(RIMM)
find success with lower-end models.
Of course, Apple could zig rather than zag -- maybe by eventually bringing to market a device that would allow users to play interactive gaming titles on a touch screen while at the same time maintaining control of a secondary application such as a digital music player. Apple recently made a patent filing for just such multitasking of input technology and techniques. Time will tell on that one.
Current Quarter Trending Well
Results for Apple's current quarter could also drive shares higher. So far, the news looks bound to be good.
Last week I visited several Apple stores to get a feel for how the company is doing so far in the holiday shopping season. Keep in mind this is just anecdotal, the experience of one shopper -- but during each visit, the stores were packed and seeing brisk business for iPods, laptops and related accessories. Comments from salespeople indicate that interest in and sales of the iPhone remain healthy. Traffic is also benefiting from the recent introduction of Leopard, Apple's newest operating system.
Other comments from several sources reinforce Apple's brisk business in the quarter:
-
CNBC reported that the iPod Touch is selling better than expected, with one of Apple's manufacturers set to release 5.1 million units over the holiday season.
- Comments from RBC suggest that iPhone sales in Europe are outpacing competitors' devices, despite the iPhone's higher price.
- Investment firm American Technology Research, which in October waged concern that Apple may have been too aggressive in its outlook for the December quarter, says a new round of channel checks suggests the company will instead beat its guidance once again.
I'd expect more positive commentary as the holiday season progresses.
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