Tuesday, June 9, 2009

Some Observations On AAPL

Apple had a great WWDC and I think more catalysts loom...

Frankly, given the magnitude of the home run for AAPL at the Worldwide Developers Conference, it's surprising the company didn't end up higher by $5 yesterday or today. Probably every sales estimate for the iPhone is too low now. This lowered price point is a huge boom for future distribution agreements as it still gives T a nice chunk of recurring revenues and retention but allows higher margin sales and double or triple the customer base as the VZ's and others come online.

The 3G S looks so good that everybody that already has an iPhone is probably going to want that one....One subtlety to the "aggressive" OS price point is that while selling phones for lower prices "might" hamper margins, the software margins will swamp any and all of that effect. Moreover, I'll take double (or triple) the phone sales and a much more pervasive halo effect over a couple points of initial iPhone margin all day long.

It sure looks like the iPhone is set to target the enterprise market with abandon. As for OS implications, I think this is a powerful attempt at trumping whatever MSFT Windows is going to do. I believe this sets up further enterprise penetration, which is wide open for AAPL currently on the computing side. In fact, the battle is moving from MSFT vs. AAPL to... AAPL vs. everyone that has yet to buy one. This helps get consumers off the fence who have purchased iPhones, and may be hesitant to purchase Mac's thus far.....like me. Frankly, I think it is just huge for brand loyalty. This is hard to measure but incredibly important.

Finally, this keeps the now much larger AAPL customer base "unified". This strengthens customer transitions, sets up cross selling ops, etc...

Overall, the event was beyond expectations and those who talk of compressed margins and "having to slash prices" to move product are totally missing the beat here. Frankly, having Steve Jobs show up would have been overkill.

AAPL survived the "sell the news" impulse; I think that probably means the coast is clear for a steady ascent in the stock price. It's a function of time, of course; but estimates, free cash flow and the stock price are all moving considerably higher....I own some common and (for me) alot of calls, but I'm wondering if I'm giving myself enough time with the calls, as they're mostly Julys...I'm certainly going to try to gobble up some more calls that expire towards the end of the year, just to be safe.

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