Wednesday, February 10, 2010

Will the Iphone kill the Blackberry ?

•Strong Results & Guidance — Nov revenues/EPS of $3.92bln/$1.10 beat consensus $3.78bln/$1.04 estimate. Unit shipments of 10.1mln were ahead of consensus 9.5mln, while $317 ASP was below $321. 4.4mln net adds beat consensus 4.1mln. Guidance of $4.2-$4.4bln revenue/$1.21-$1.31 EPS also topped $4.1bln/$1.12 consensus.

•North America Goes Flat – Saturation or Competition? — We estimate North American revenues were flat q/q in November, indicating a saturated market or increased competition. We believe the latter – Android invasion is underway, bringing more robust ecosystem, significantly better browsing experience & more differentiated/appealing form factors. While Verizon has been a great partner, we think loyalties are shifting, potentially setting up large growth hole in CY2010. Can International Carry the Weight? — International growth of 38% q/q was tremendous in the quarter, but we don't think current model is sustainable. Europe appears to be fertile opportunity, but we believe carriers will demand lower pricing on both devices and monthly ARPU. We don't see Western character QWERTY as long-term winner in
Asian markets. Simply put, we think international growth is near-term support, but not sustainable w/current model.

• Stock Call — Remain sellers of RIMM & recommend using strength to reduce positions. Acknowledging solid print & guidance, we think 2010 is shaping up to be highly competitive year w/no sign of iPhone slowdown & Android invasion kicking into high gear. We continue to believe that RIMM will be faced with either higher marketing spend, slower unit growth, or lower ASPs. North America has already gone flat & could plausibly decline next year, placing incredibly heavy burden on international growth to meet estimates. Potential (eventual?) launch of Verizon iPhone looms as large risk. Estimates edge higher on results, but our concerns increase given flat North American growth. Target increases slightly to $52 from $50 on higher EPS estimates, slightly lower forward multiple.


Apple Inc (AAPL)
“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 and possibly color) and to lower the device price closer to $200.


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