Apple's new iPads, Macs, OS X: What the analysts are sayingOctober 23, 2013: 7:59 AM ET
In an event that went largely as expected, Apple managed to throw in a few curves.
FORTUNE -- Analysts were neither wildly excited nor terribly disappointed by Apple's (AAPL) event Tuesday. Hardly anybody changed his or her rating or price target, although a few discovered that their iPad estimates were off -- either too high or too low -- when Tim Cook announced that Apple sold its 170 millionth unit earlier this month.
Below: Excerpts from the analysts notes we've seen so far. More as they come in, new ones on top.
Bill Shope, Goldman Sachs. Product launch recap. "We attended Apple's October 2013 special event, held at the Yerba Buena Center for the Arts Theater in San Francisco. Overall, there were few surprises at the event, other than some of the company's pricing changes; we believe the new iPads could begin to reinvigorate Apple's revenue growth in the tablet category, and we view the company's increasingly free software model as an important long-term driver of its ecosystem breadth and installed base loyalty. Largely due to the large form-factor iPad upgrade and the company's higher price points for the Retina iPad mini, our overall iPad ASPs increase and units decrease more modestly... Overall, we believe Apple's recent iPhone refresh is trending better than expected (with a greater mix shift towards the higher ASP 5s as well), and we believe the new iPads can reinvigorate Apple's tablet revenue and profit momentum in coming quarters. As a result, we believe guidance and out year estimates are biased to the upside, and we believe this will continue to drive a recovery in the share price. Buy. $560.
Scott Craig, Merrill Lynch: Multiple products refreshed with limited surprise. "Apple refreshed its iPad, iPad mini, MacBook Pro and Mac Pro desktop, although we view the product refreshes as evolutionary, rather than revolutionary – a continued theme at Apple recently. While the iPad was refreshed with a new name ("iPad Air"), everything else was inline with expectations. The iPad mini was also inline although somewhat surprisingly the price was increased, likely in an effort to curb the greater than expected cannibalization of iPad by the iPad mini. The pricing strategy provides further evidence that Apple has limited desire to enter low end markets, at least near term, following the recent phone announcement. Downgraded to Neutral. Price target lowered to $530 from $570.
Toni Sacconaghi, Bernstein: iPad Launch Largely as Expected. "The new iPad is being initially rolled out to more countries (42 vs. 34, including China) than last year, which we believe could lead to amplified initial demand. The downside, as with the iPhone, is that shipments and revenue will likely fall more sharply once initial demand is met. Combined with iPhone cyclicality, we believe this accentuates the potential upside to December numbers and the risk to March and June numbers." Outperform. $600.
Kulbinder Garcha, Credit Suisse: Pushing the compute portfolio. "As widely expected, Apple refreshed its compute line-up yesterday. The company announced a refresh on the hardware side with the iPad Air - smaller, lighter, faster with better data connectivity compared to the previous version and iPad mini. In addition, Apple introduced new price points for the Mac product line up. The only real surprise was that the OS update and apps are now free on the Mac side. The main disappointment came around the pricing of the iPad mini, with the updated version priced $70 higher than its predecessor. This again highlights that Apple is not interested in market share for its own sake." Neutral. $525.
Brian Colello, Morningstar: Apple Keeps High-End Focus with IPad and Mac Launch. "Apple's new 9.7-inch iPad has been rebranded the iPad Air, perhaps because it is lighter and thinner than prior versions. However, when thinking about Apple's MacBook branding, we think the Air branding may hint at a future iPad Pro someday, perhaps a 13-inch tablet, as Apple continues to improve the functionality of its tablets beyond mere content consumption and toward content creation. Apple also changed its iPad Mini pricing, but again took the tactic of maintaining a premium position in the market rather than striving to gain massive market share at the low end. The price increase of the new iPad Mini with retina display to $399 seems a bit high, but isn't shocking given the high component cost of these displays. A $30 price cut in the original iPad Mini to $299 was nice news, but probably not enough to stem market share losses or truly compete with older Amazon Kindle Fires priced as low as $139. Fair value: $600.
Rob Cihra, Evercore: New iPads as Expected and We Still Think Air Could Drive New Cycling. "Apple unveiled its new 5th gen 9.7in iPad "Air" with specs largely as expected, incl new thin/light design that now weighs "just 1lb" (28% lighter), with narrowed mini-like bezel and 64-bit A7 processor. Pricing unchanged and shipments start globally Nov 1. iPad mini was updated with new Retina version but, also as expected, looks delayed by supply shortage and will not ship until late Nov. Starting price for mini Retina increases $70 to $399 while gen-1 now drops $30 to $299, resulting in what we expect ultimately nets out as a ~$23 increase in blended mini ASP. We think Apple realizes it probably could have priced its initial iPad mini $25 higher from the outset and sold the same number of units. Another helper to GM and nod to Apple's higher-end demographic." Overweight. Raises price target to $630 from $600.
Brian Marshall, ISI: iPad Refresh Looks Compelling Enough to Drive Upgrades... "We spent some time with the new iPads and expect the new feature set to drive a significant upgrade cycle into the ~170mil installed base.... In particular, the velocity at which AAPL will distribute the product globally (e.g., listed dozens of countries including China) is impressive with the iPad Air starting to ship on Nov. 1st and the iPad mini with Retina display shipping later in November. Additionally, AAPL introduced the latest OS X (Mavericks) and updates to its software suites (e.g., iLife, iWork)." Rating: Strong buy. Price target: $600.
Charlie Wolf, Needham: Free is good. So is more powerful, thinner and lighter. "Although the new Mac and iPad models introduced at the company's event yesterday were widely anticipated, Apple still managed to throw a few curve balls... It was pretty much a given that Apple would introduce more powerful Macs and iPads at its event yesterday. Many of the new components, like the A7 processor, made their way into the iPad lineup along with the new iOS 7 operating system. And the company increased system integration among all of its devices through iCloud. But a major surprise occurred in pricing. Apple dropped the price of its new OS 10 Mavericks Mac operating system to free. It also cut the prices of all of its materially enhanced iLife and iWork suites to free as well. The move to free should stimulate demand for the iPads as well as Macs. But it has the potential to cause a world of hurt to competitors who still rely on software revenues to drive their earnings." Buy. $595.
Katy Huberty, Morgan Stanley: New iPads Help but iPhone Remains Upside Driver. "At over 50% of revenue and 65% of gross profit dollars, the iPhone remains the key upside driver after a successful 5s/iOS7 launch. Newly announced iPad Air, iPad Mini w/ Retina, MacBook, and Mac Pro help stabilize the remainder of the business, particularly after we de-risked estimates last month. New and improved iPads combined with broader price points should help stabilize revenue growth starting in 4Q13. Apple announced shipment of its 170Mth iPad earlier this month, which aligns with our 168M cumulative shipments through the end of September. The slight C3Q13 unit growth acceleration (-7% Y/Y vs. -14% in C2Q) should continue into C4Q on the back of today's announcement. We view our -4% Y/Y iPad unit decline estimate in C4Q13 as potentially conservative given iPad Air (20% thinner, 28% lighter) and iPad Mini will ship to 42 countries (incl. China) compared to 34 countries a year ago." Overweight. $540.
Maynard Um, Wells Fargo: Strong Portfolio Into Holidays; Shifting Ecosystem Battle. "Apple's iPad mini, iPad Air, MacBook Pro, and Mac Pro announcements, while largely as expected, gives it a strong portfolio heading into the holiday season with more attractive price points. The surprise, to us, was the free upgrade to OS X Mavericks and free iLife and iWork suites for new iOS and Mac purchases. In our opinion, this signals a shifting ecosystem battle to drive more usage, which, in turn, should result in greater ecosystem loyalty – a tradeoff we see as logical to distance itself from competing ecosystems. Collaboration capabilities may also help to drive "halo effect" sales over time (in order to utilize all the features and functionality)." Market weight. Valuation range: $525-$575.
Amit Daryanani, RBC: It's going to be a long wish list for Santa... "Much of the announcement was inline with expectations, the biggest surprise being - pricing. AAPL cut Macbook Pro pricing by $200/unit, and announced Mavericks OS and Apps (like iWork, iLife, etc) will be offered for free. AAPL refreshed most of its non-iPhone products, ensuring everyone's wish list for Xmas will have multiple AAPL products. The most exciting refresh from our perspective was the iPad refresh, which we expect will drive significant upgrade cycle, specially the iPad mini (with retina display). The key to watch for iPad mini will be production and yield challenges given the new and more complicated display. Furthermore, comparable to the iPhone launch the refreshed iPads will be available in multiple countries including China (1st time). Finally, we expect the lower price point ($299) for the original iPad mini, will also drive units/revenues given the extremely attractive price-points." Outperform. $550.
Brian White, Cantor Fitzgerald: The Most Significant iPad Refresh Since the Original iPad. "Earlier this week, we characterized today's iPad refresh as the most significant since the original iPad went on sale in April 2010 and we were not disappointed. In fact, Apple surprised us on the upside. With Apple today announcing that 170 million iPads have been sold (as of earlier this month) since the introduction of the iPad, we believe this will prove to be a major upgrade cycle. Buy. $777.
Gene Munster, Piper Jaffray: iPad Updates Confirm Trend To Stable Margins. "We believe that based on the pricing of the iPhone 5C and raising price of the new iPad Mini with Retina, Apple is focused on holding its ground on price on mobile devices, which is directionally positive for gross margin. We are currently looking for gross margins of 36.7% in CY14. Given the positive pricing trends for iPhone and iPad, which make up 75% of sales, we believe the near-term gross margin trend should be generally stable in the 36-38% range. Aside from the margin detail, we believe the new iPad gives us comfort that growth can reaccelerate in the December quarter (we are currently looking for 27% y/y unit growth from likely flat in September)." Overweight. $640.
Chris Whitmore, Deutsche Bank: Incremental upgrades from Apple. "We expect Apple's new iPad 'Air' (starts at $499) to be well received due to the significant improvements portability (weight & size) and performance (64bit, graphics). Meanwhile, iPad mini with retina display will cost $70 more than the prior mini, resulting in less cannibalization risk from the low-end and better than feared margins on the mini. If anything, we believe Apple priced the iPad mini too competitively a year ago, which impacted Mix / ASPs and margins as customers migrated down to the mini. Apple is also differentiating its products via software (free iWork, etc), enhanced features (64bit, etc), and a broad App ecosystem (475K apps). Apple avoided making a large concession on price which should support corporate profitability and help disarm the bear case of secularly declining margins." Buy. $575.
Trip Chowdhry, Global Equities Research: Operating System is now Free. "Microsoft will find it extremely difficult to charge for OS moving forward... Personal Productivity Software is also now Free... Microsoft Office productivity Suite pricing may come under pressure. Apple has included the Collaboration feature in iWork, which is a catchup to Google Docs." Overweight. $725.
Thomas Husson, Forrester. New iPad Air and iPad mini will maintain Apple's premium positioning in the increasingly competitive tablet market. "As always with Apple, expectations on systematic breakthrough hardware innovations are irrational. Apple is good at inventing new products (e.g., iPod, iPhone, or iPad) and at maximizing profitability of its product range over time through software innovations and clever marketing. Yes, at some point, the company will need to disrupt a new market once again, but today's announcement is really about making sure it maintains the premium brand experience for the holiday season when competition is heating up — not just for tablets but also for the amazing new line of Mac products."