Thursday, January 28, 2010

Apple Announces the iPad Tablet

Apple unveiled its long-awaited iPad tablet and we believe the device could be a compelling product at its $499 starting price. The massive popularity of netbooks over the past few years illustrates the demand for very portable Internet devices. The iPad taps into that demand with a product that bears Apple's hallmarks of innovation and elegant design. The $499 price point will likely disrupt the netbook market, as well as the market for single-purpose devices like the Amazon Kindle. We
believe it will be difficult for competitors to produce a comparable product at the iPad's price point. Apple is clearly willing to leverage its very profitable existing operations, $40 billion of cash, and ability to monetize users through the sale of services to price the iPad at a relatively narrow gross margin to drive adoption of a new device category

“iPad” Lives Up to the Hype; Raising Estimates and Target

Quick Call — We are raising our earnings estimates and price target to reflect the introduction of the highly anticipated “iPad.” Based on features, price, and TAM (total avail mkt) analysis, we believe that Apple could ship 10M iPads during the first year of availability.

Positives — The biggest positives from the announcement were the $499 starting price (vs. consensus of $699-799) and surprisingly cheap prepaid 3G data plans from AT&T ($15 or $30/month for 250MB or unlimited data, respectively).

Negatives — As expected, the device will not be available until late March (late April for the 3G version). In addition, we foresee some cannibalization of iPod touch, suggesting that the device is not 100% incremental.

Huge Market Opportunity — While iPad’s eBook and gaming capabilities will command (and deserve) much attention, the larger opportunity for the product, in our view, is the 29M unit/year netbook market where customers’ primary usage patterns are web browsing and multimedia consumption.

Financial Impact — We estimate iPad shipments of 4M, 15M, and 21M during FY10, FY11 and FY12. We have assumed minimal cannibalization of other Apple products outside of iPod touch. We have revised up our revenues by 4-15% and EPS by 3-11% for FY10-12. We consider our unit, ASP and margin assumptions to be conservative.

Implications for Kindle & Amazon — We view the iPad launch as a mixed to negative development for Kindle and Amazon, but one that was mostly expected. In the end, we believe the iPad increases the pressure on Amazon to do a Kindle product refresh in ’10 (potentially with touch screen functionality Read Full Report [citigroup] HERE

Digging into the iPad

iPad arrives: Apple launched its long-awaited tablet computing device yesterday. Overall, many of the device’s features were in-line with expectations. The key positive surprises were the price point (for both the device and data plans) and the use of Apple-designed silicon. The key negative surprises included the lack of a new OS capable of multi-tasking and no carrier partnerships beyond AT&T.

Overall, we were impressed with the device, and we believe Apple’s unique pricing strategy expands the TAM for this product beyond our initial expectations. In addition, as we discuss in this note, the upgrade pricing maximizes the margin profile (and potential margin profile) in a manner we didn’t appreciate prior to the launch. As a result of these assumptions, we now forecasting $54.40 billion and $11.83 for FY10 revenues and EPS, versus $53.34 billion and $11.54 previously. For CY10, we are looking for revenues and EPS of $56.74 billion and $12.38,
versus $54.33 billion and $11.67 previously. For FY11, we forecast revenues and EPS of $62.31 billion and $13.64, versus $58.06 billion and $12.44 previously.

■ 2010 is looking pretty: With a macro recovery as a tailwind, we expect iPhone and Mac share gains to continue to drive profit growth in coming quarters. The iPad now adds a nice addition to these trends, and it further expands Apple’s total available market opportunity.

■Catalysts:. Additional content and carrier partners for the iPad should be announced in coming months, further fueling the device’s appeal. In addition, we expect increasingly encouraging data points on consumer demand for iPhones and Macs to emerge as we progress through the year.

■Valuation: Net cash per share currently is $43.29, including long-term investments. Excluding this cash and associated

[credit suisse] read full report here

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