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AAPL May Yield a Bumper Crop This Fall

AAPL May Yield a Bumper Crop This Fall

Though Apple shares have gained a bit since the company's iPod event last week, the new hardware hasn't exactly catalyzed an AAPL explosion. Instead, look for the company's hotter product lines to lead the way, as iPad and iPhone sales pick up through autumn. A quarterly report this October is expected to be strong, which should gin up share prices further.

Though it may be some time before AAPL shares again reach the record-setting heights they saw last June, they appear to have made modest gains over the last week. Shares closed Tuesday at US$257.81, down 96 cents for the day but up about $10 since Sept. 1.

Meanwhile, Sony has demoed a prototype Google TV at the IFA 2010 consumer electronics show in Berlin; Scandinavian TV manufacturer Lava has unveiled a line of TVs running Google's Android operating system at the same show, and other TV manufacturers are reported to have plans to follow suit.

Further, Google has announced its plans for world domination of the Web TV market, with CEO Eric Schmidt saying at IFA 2010 that a Web TV service would be launched in the United States later this year and this would be expanded worldwide in 2011.

None of this looks to be especially good news for Apple, but look more closely at the company's share prices and you'll realize Tuesday's slip could be a temporary hiccup in what appears to be a steady upward climb toward the $260 mark.

For one thing, Apple is reported to have increased its iPad production to 2 million units a month, double the previous figure, and there's word it's planning to hike this figure to 3 million a month from the fourth quarter.

Also, iPhone sales appear to have picked up, and Barclays predicts that Apple can outgrow the consumer PC market, where demand is falling, partly due to cannibalization by the iPad. Another analyst firm, Gleacher, is also optimistic about Apple's outlook.

No Particular Place to Go

Last week, Apple announced a family of new iPods, a revamped $99 Apple TV and new TV show rental offerings with partners ABC and Fox. It also debuted Ping, a new social music service that is really an e-retail service on steroids.

Overall, the event fell flat.

"I think the event was a non-event," Brian Marshall, an analyst at Gleacher, told MacNewsWorld. "The iPhone and iPad are what it's all about today."

Apple's announcement of a new iPod line and of the second-generation Apple TV will not impact Gleacher's financial model or price target, Marshall said. Sales of iPods are falling, he pointed out, and he doesn't think the second-generation Apple TV will do much right now, although it's a "dramatic improvement" over its predecessor.

However, Marshall contends the Ping service "could be very cool" and might accelerate the purchase of content on iTunes if it is successful.

Ping drew 1 million users within 48 hours of its launch, Apple claimed. That sounds good until you recall that the service was thrown open to all 160 million iTunes subscribers worldwide nearly a week ago. In other words, far less than 1 percent of potential users have hopped onto the Ping bandwagon.

All investors can do now is keep an eye peeled to see whether or not demand for Ping picks up over the next few months.

Apple TV's Issues

Perhaps the second-generation Apple TV didn't really turn anyone on because it doesn't do enough.

"I really want the 'real' product, which seamlessly integrates the home office and living room wirelessly and run iOS so I can have apps in my living room," Gleacher's Marshall said. "We will have to wait for that product to come out in the coming years."

The problem Apple is really trying to solve is how to get the Web connected to users' TV sets, Yankee Group analyst Dmitriy Molchanov has pointed out.

"In the future, most TVs will have a WiFi or a connectivity chip inside, and when that happens, you'll have apps sitting on the TV and the TV will run its own software," Molchanov told MacNewsWorld. "Google has done something interesting in this space with Google TV because it recognizes TVs that can connect to the home network aren't available in the market today."

Meanwhile, several TV manufacturers are expected to unveil televisions running Android. Many are also building their own TV operating systems. Further, Google is offering Google TV, which has its own platform, and plans to take this worldwide in 2011. These factors could pose a problem for Apple TV as the market fragments.

"Apple needs to gain control of the TV screen, and the TV industry needs to move away from closed environments and let its connected TVs work with all the apps and streaming content consumers find so appealing," Andrew Eisner, director of content at Retrevo, pointed out.

Maybe investors shouldn't pin too much hope on the second-generation Apple TV just now; after all, Steve Jobs continued to describe it as a "hobby" at last week's announcement.

More iDevices in the Pipeline

Other iDevices may be a source of optimism, however.

Cupertino has doubled its monthly iPad production to 2 million units a month to meet demand, Morgan Stanley analyst Katy Huberty reportedly said. There are reports that Cupertino wants to increase output even more, to 3 million units a month in the fourth quarter.

This news comes on the heels of reports that Apple has ironed out problems with screen supplies and quality, which restricted its supplies of iPads. Also, Apple recently cut the waiting time for delivery of iPads purchased from 7-10 days to 24 hours.

There's also good news on the iOS front. Android has been gaining significant market share for mobile Web access, but the latest report from Quantcast indicates that the iPhone has regained some momentum.

The iPhone gained 1.1 percent of market share for mobile Web consumption in North America in August, according to Quantcast. However, iPods lost 1.4 percent market share in this area.

That having been said, these figures are all relative, so even a slip in market share may not be as bad as it looks.

"Mobile as a share of all Web consumption is growing quickly, so a decline in mobile share does not mean that a particular device or operating system is declining in total share," Quantcast said.

In other words, the pie's bigger so even if your slice is shrinking, it'll be bigger than before.

Chewing Up the PC Market

Apple may also shine in the PC market.

While the consumer PC market is shrinking because demand is falling and the iPad is cannibalizing sales, Apple is doing the reverse, Barclays Capital said in a note to investors.

"Given the buy your own PC trend, international store growth, and a halo effect from iPhone expansion, we continue to believe Apple can outgrow the PC market over the long-term even at premium prices," Barclays forecast.

Third-quarter Mac sales will show a 23 percent growth, and "we believe even these estimates could turn out to be conservative," Barclays said.

Barclays expects iPad sales in the third quarter to hit 4.3 million, which "is very conservative," and figures the media tablet market will exceed 15 million units in 2010 and more than 30 million units in 2011.

Light at the End of the Tunnel

"I continue to believe my estimates remain on the conservative side with room to move higher in the future," he elaborated.

Marshall expects Apple shares to hit the $300 mark by the end of the year and pegs them at $350 within 12 months. International sales of the iPhone, strong demand for the iPad, and iAd sales contribute to his optimism.

"The next major milestone for the company is its earnings report in October, and we expect numbers to move up once again," Marshall said. "Apple's stock should react well to that."


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