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Apple Investors Should Brace Themselves: Monday Event Could Be A Yawner

You probably won’t need to hold onto your socks during Apple ‘s ( AAPL ) spring product launch event on Monday. That’s the message from Wall Street analysts trying to set realistic expectations for what’s likely to be announced. The tech press has been reporting for weeks that Apple will unveil a new 4-inch iPhone, a new 9.7-inch iPad and new Apple Watch bands at the media event Monday at Apple’s headquarters in Cupertino, Calif. “While we expect to see several ‘under the hood’ improvements across devices, we are not expecting the same exuberance as last year when Apple shared final details of the Apple Watch,” Oppenheimer analyst Andrew Uerkwitz said in a report Friday. “Moreover, we worry investors will find the next several Apple media events underwhelming.” Uerkwitz rates Apple stock as outperform with a 12- to 18-month price target of 120. Apple shares rose a fraction to 105.92 on the stock market today . Apple has a bunch of innovations in the works for release in 2017 and 2018, he said. They include possibly an iPhone with an OLED display, a virtual reality headset, 360-degree camera, and a hub for smart-home products using Siri, Uerkwitz said. Any surprises at Monday’s event likely will revolve around pricing for the new products and possibly the Apple Watch or the introduction of new MacBook or Mac Pro computers. Apple CEO Tim Cook also is likely to use the event as a platform to reinforce the company’s argument that the federal government has overstepped its legal bounds by demanding Apple hack its iPhone security. Apple and the Justice Department are set to square off in a federal court on Tuesday in a criminal case where the FBI wants Apple to develop software to bypass its password security measures. Because Apple gets most of its revenue from the iPhone (68% of sales in the December quarter), most of the attention Monday will be focused on the rumored iPhone SE. The new 4-inch iPhone will replace the same-size iPhone 5S, which was introduced in September 2013 and is still on sale. The new model is expected to sport an A9 chip, NFC technology to enable Apple Pay and a 12-megapixel, rear-facing camera to bring it up to snuff with the other iPhones. But it reportedly won’t have a pressure-sensitive screen like the premium models, the iPhone 6S and 6S Plus, which have 4.7- and 5.5-inch displays, respectively. The SE will be targeted to customers who prefer a smaller size handset as well as emerging markets because of its expected lower price. The iPhone SE “is likely to be a low-volume (for Apple) product that has minimal effect” on its earnings and stock price, Pacific Crest Securities analyst Andy Hargreaves said in a note Thursday. Hargreaves is bullish on Apple with a price target of 127 because of likely growth in the iPhone 7 cycle starting this fall. “Investors are not excited about this new phone,” Rosenblatt Securities analyst Jun Zhang said in a research note Tuesday. Zhang is “bearish” on prospects for the new iPhone SE because he expects that its price will be similar to second-hand iPhone 6 handsets in large emerging markets. “Second-hand iPhone 6’s are sold online at $350 in China, which we believe will be same price range of the iPhone (SE),” he said, adding that the price difference is such that many users will go with the larger display phone. Apple faced a similar pricing problem when it launched the iPhone 5C handset alongside the iPhone 5S. The 5C was priced only $100 cheaper than the 5S but had a cheaper-looking plastic casing. Sales of the iPhone SE are likely to be “ modest ” at 10 million to 15 million units annually, RBC Capital Markets analyst Amit Daryanani said in a research note Thursday. Still, the new phone could provide a buffer ahead of the launch of the iPhone 7, he said. Component suppliers likely to benefit from the iPhone refresh cycle include Jabil Circuit ( JBL ), Broadcom ( AVGO ), Amphenol ( APH ) and Texas Instruments ( TXN ), he said. Also Monday, Apple is expected to unveil its third-generation 9.7-inch iPad Air, which will be given similar functionality and accessories to the 12.9-inch iPad Pro. The current iPad Air 2 was launched in October 2014. The iPad Pro with its Smart Keyboard and Apple Pencil debuted last September. But the tablet business has been in decline at Apple and the new iPad is unlikely to change that, analysts say. “We do not expect the updates to materially change our outlook for iPad units, which seem likely to continue declining through fiscal 2016, but at a moderating rate,” Hargreaves said. Apple holds an IBD Composite Rating of 66 out of a possible 99, factoring in earnings growth, stock performance and several other metrics. Chipmaker Broadcom gets a 98 , Amphenol a 91 and Texas Instruments an 84. Jabil is not currently highly rated by IBD, with a Composite Rating of just 47.  

Chip Game On: AMD May Undercut Nvidia With Intel Deal; Who’s In VR?

Advanced Micro Devices ( AMD ) might score an Intel ( INTC ) license deal. It would scoop  Tesla Motors ( TSLA ) partner Nvidia ( NVDA ), which receives $66 million in quarterly royalties from the No. 1 chipmaker, a Needham analyst says. But Argus analyst Jim Kelleher says that Nvidia has distanced itself from the PC market, instead focusing on niche growth areas like virtual reality (VR), autonomous vehicles, artificial intelligence, the Internet of Things and robotics. In VR, Facebook ( FB )-owned Oculus recommends Nvidia and Advanced Micro Devices graphics cards for its Rift series. This week, Oculus announced 30 new titles and demoed the tech at the Game Developers Conference in San Francisco, Calif. Graphics cards are outfitted with GPUs, or graphics processing units. Advanced ones are needed for many of today’s richly visual computing experiences that are computationally intensive — everything from the movement in gameplay to VR and many other kinds of applications. Nvidia’s Intel Royalty To Expire On Friday, Kelleher initiated coverage on Nvidia stock with a buy rating and a 39 price target, a day after Needham analyst Rajvindra Gill reiterated a hold rating on Nvidia stock following the Intel-Advanced Micro Devices rumor. Nvidia is on the IBD 50 list of leading growth stocks. In early trading on the stock market today , Nvidia stock surged 3.9%, trading near 34.10 and in buy range from a 33.16 cup-with-handle buy point. Advanced Micro Devices stock flew higher, up 4.3%, but usually trades considerably lower, near 3. Nvidia’s royalty deal with Intel is set to expire in 2017, and the GPU leader failed in December to defend its patents in a lawsuit against Samsung and Apple ( AAPL ) supplier Qualcomm ( QCOM ). “We don’t litigate for our business model,” CEO Jen-Hsun Huang told investors in November. “We don’t depend on licensing for our business model.” To offset the loss of Intel’s royalty stream — which will impact 2017 earnings per share by 25-30 cents — Nvidia needs to add $470 million in annual revenue, Gill wrote in a research report. He noted that Intel can continue using Nvidia patents filed before March 31, 2017. “While Nvidia has expressed interest in monetizing its GPU patent assets, we have seen little evidence to date that this will materialize,” he wrote. Nvidia controls 75%-80% of the GPU market, having long ago ceded the gaming console market to Advanced Micro Devices, which provides its RADEON semi-customized chips to Sony ( SNE ) and Microsoft ( MSFT ). Nvidia Shifts To Gaming In 2013, PC sales accounted for 42% of total Nvidia revenue. In 2016, gaming, enterprise graphics, data center and automotive brought in 85% of total revenue, dropping PC sales down to 9%. IP brought in 6%. Gaming represents a $20 billion market opportunity for Nvidia, leading $8 billion, $6.5 billion and $5 billion opportunities in the artificial intelligence, enterprise graphics and data center markets, respectively, Kelleher wrote. In fiscal 2016, gaming (largely PC) generated $2.8 billion of Nvidia’s total $5.01 billion in sales, up 30% year over year. Nvidia targets 5%-10% annual growth “based on gamers’ insatiable desire for improved graphics in games,” he wrote. Nvidia also pulled in $750 million in enterprise graphics, $340 million in data center and $320 million in automotive. In fiscal 2016, Nvidia’s automotive segment grew 80% year over year and includes Nvidia-Tesla-partnered GPUs. The U.S. Department of Energy selected Nvidia’s NVLink interconnected technology coupled with IBM ( IBM ) processors to power its next-generation supercomputers, 10 times faster than current supercomputers. Kelleher recognized that 2018 earnings might flatten as Nvidia makes further investments in “growth niches.” “We regard this as an acceptable trade-off for building share in markets that could drive significant growth in years to come,” he wrote.

How Will We Watch TV Next, And Will Apple Or Comcast Rule It?

Apple ( AAPL ) has the future of TV all wrong, says a Barclays analyst who follows the cable TV industry and who’s upbeat on Comcast ’s ( CMCSA ) X1 service platform. Apple, Alphabet ‘s ( GOOGL ) Google, Comcast and others are vying to be the gateway to entertainment, says Kannan Venkateshwar, a Barclays analyst, in the report. He expects a battle to unfold as both pay-TV companies and technology rivals aim to be the “aggregator of aggregators,” the one-stop shop consumers go to for all forms of content. Apple rolled out its fourth-generation TV hardware in late 2015, but it’s been stymied in content talks with media giants and has shelved plans, at least temporarily, for a web-based TV service. “According to Apple, television will become a collection of applications. We believe the world is likely to move in a different direction, with an aggregator of aggregators, which then directs traffic to all other apps,” Venkateshwar wrote in the report. “In our opinion, those that control the ‘last mile’ and the relationship with the consumer, like Comcast, are in a much better position to be the aggregator than technology platforms like Amazon ( AMZN ), Google or Apple.” In September 2015, Apple introduced new TV hardware, including a Siri-controlled remote control, and added an app store to the platform. “We believe the future of television is apps,” said Apple CEO Tim Cook. Pay-TV companies, though, may be poised to build up relationships with media and entertainment companies, speculates Venkateshwar. “Companies like Comcast are able to aggregate every stream of content used by a consumer (TV, DVR, video-on-demand, gaming, etc.) while technology platforms like Apple can only aggregate subscription VOD content,” he said. “While it may be difficult for companies like Comcast to compete with the likes of Apple on the metric of user experience, we think the resources being put behind the vision at present seem to be moving in the right direction, with the evolution of the X1 platform being a prime data point.” Comcast expects half of its 22 million video subscribers to be using X1 set-top boxes by the end of 2016. While X1 currently does not support a Netflix ( NFLX ) app, under Venkateshwar’s vision it would have to. The X1 entertainment platform provides access to live broadcast, on-demand video and DVR-stored content. In November, Comcast partnered with 30 broadcast and cable networks to bring short-form Web clips to X1 set-tops as part of its video-on-demand (VOD) lineup. IBD 50 company Alphabet gets a best-possible Composite Rating of 99 from IBD, looking at earnings growth, stock performance and a raft of other measures. Comcast has an 88, Amazon a 68 and Apple a 66. Image provided by Shutterstock .