Apple 2.0

Covering the business that Steve Jobs built

Report: Apple 'clicking on all cylinders'

May 7, 2010: 1:53 PM ET

A Barclays analyst leaves a meeting with top executives more bullish than ever

You wouldn't know it from Apple's (AAPL) share price -- which at one point Friday morning was down another $20, having closed Thursday off nearly $10 (see here) -- but there's nothing wrong with the company that some well-crafted Wall Street reform couldn't cure.

Analysts who pay attention to Apple's fundamentals have been issuing one positive note after another. On Wednesday we heard from Bernstein's Toni Sacconaghi, not always Apple's greatest fan, who estimates that the company's new iAd advertising platform could generate an additional $800 million in revenue for Apple in fiscal 2010 and another $1.6 billion in fiscal 2011.

And on Thursday Barclays Capital's Ben Reitzes weighed in with a glowing report based on a recent meeting in California with three of Apple's top brass. "In short," he concludes, "Apple seems to be clicking on all cylinders."

He reports that the executives he met with-- CFO Peter Oppenheimer, Apple Store czar Ron Johnson and Internet services VP Eddy Cue -- were "very optimistic" about Apple's prospects. No surprise there.

But to his credit, Reitzes left the meeting with a notebook full of details about the company's operations, some of them fresh. Among his findings:

  • More new products to come. We know -- or we think we do -- about the iPhone with the second camera for video chatting, which Reitzes expects to be unveiled June 7 at Apple annual developers conference. But the impression Reitzes got -- without any supportive detail -- is that Apple has more surprises coming down the pipeline.
  • iPad supply problems. File this under the category of problems other companies wish they had. Demand for the new tablet computer is so strong that many Apple stores are sold out and Reitzes is hearing that recent orders are taking even longer to fulfill than the 5 to 7 days posted online.
  • Cheaper iPhones. Sales of Apple's mobile phones could take off this summer if, as Reitzes believes, the company lowers prices for the iPhone 3GS to $99 (for the 8GB model) and $199 (16GB).
  • Squeezed by the Euro. One sour note Reitzes strikes is the impact of the fall of the Euro against the dollar. That could hurt Apple's gross margins in fiscal Q3, already guided down to 36% from Q2's 41.7%. But, says Reitzes, "The impact of the Euro may only be worse than forecast by a little given Apple hedges its currency exposure 3-6 months out." In other words, not so bad after all.

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[Follow Philip Elmer-DeWitt on Twitter @philiped]

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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