From CSFB sector review 5/2/05: We attended the launch of Apple’s newest operating system, Tiger, at Apple’s Soho Store on Friday night at 6:00 PM, and while it is difficult to draw any big picture conclusions from a small sample size, an Apple event is always good for a few interesting sights and sounds. Below we present our Top 10 sightings from Friday night in NYC:
10. A line 122 people long at 5:00, an hour before the launch.
9. A line of over 300 people stretched around the block (from Prince Street to Houston Street) at 6:00 when the doors opened.
8. A guy in a faded Tiger suit with a boom box playing Survivor’s 1991 smash hit “Eye of the Tiger” (Sylvester Stallone was NOT spotted running down Prince Street in torn sweats).
7. A kid in a Winnie the Pooh costume who had been waiting in line since 2:45 (he was second in line).
6. Almost half of Friday’s customers purchasing more products than just Tiger. iLife ’05 was the most popular non-Tiger purchase from our vantage point, while iWork ’05 also garnered significant wallet share.
5. At least three people who were waiting in line to see Tiger Woods.
4. A line of 260 people stretched around the block at 6:30 after an estimated 300 people had already entered the store.
3. A woman who left angrily after being told she was not allowed to cut in line just because she wanted to check her email.
2. A man who claimed to have inside knowledge as to the name of Apple’s next OS...“Cheetah”, he proclaimed...or was it Lion?
1. Tiger—the star of the show.
Research Team: Robert Semple, Peter Possemato, Chris Kelleher
CSFB
• Takeaways. Mac OS X Tiger was launched with considerably more fan fare than Apple’s previous two upgrades, Jaguar and Panther. While Apple only released limited information regarding its previous two upgrades, we know Jaguar did 100,000 sales and preorders in its first weekend of release, and Panther (more popular than Jaguar) did over $60 million in sales its first quarter of release. We expect Tiger to outpace both of these targets this quarter.
• Software Is the Story This Quarter. Apple’s 3Q outlook calls for a 130 basis point decline in gross margins owing to increased education spending (lower margin) along with an estimated 50% sequential decline in sales of recently released iLife and iWork software suites. We believe many Apple customers opted to hold off on iLife upgrades and iWork purchases last quarter until Tiger was released, a trend that should help mitigate the potential 3Q slowdown in application sales. With a higher than expected mix of software sales unfolding in 3Q, Apple should deliver nice upside to gross margin expectations.
• Reiterate Outperform. We believe Apple’s momentum has yet to peak, and Friday night’s observations give us even more conviction in our belief that Apple will deliver upside to consensus estimates for 3Q. The Apple story is morphing beyond that of iPod euphoria in 2004 to that of Mac share gains in 2005. Given our constructive stance on near-term fundamentals and longer-term share gains in its Mac business, we believe Apple is attractively valued at 20 times CY05 NOPAT of $1.38, a valuation level where the stock has found support five times over the past two years.
Rating OUTPERFORM* Price Target price (12 months) 45.00 |
