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August 30, 2007

Apple iPod Event on September 5th

Earlier this week, Apple sent out invitations to a "special event" on September 5th. The invitation clearly signals iPod related announcements. The better websites in the Apple rumor mill are suggesting that the company will convert all iPods to flash, a new flatter and wider nano (presumably to offer better video capabilities), and touchscreen video iPod modeled after the iPhone. In addition, the Mac operating system in use on the iPhone will be used on the new iPods (which may mean the end of the infamous and highly successful click wheel in some models). The last few words of the invitation copy the final words of The Beatles last press release so Beatles music on iTunes seems like a possibility as well.

As you know, I have been a vocal Apple bull and I am a big believer in the Mac market share story and think that the software side of Apple is underappreciated asset. I've been long Apple for Northlake clients since January of 2005, while both trimming and adding to positions on the way up. My most recent trades were to add shares in the past two weeks in the range of $114 to $123. On Street Insight and Real Money, I have actively and readily defended the shares and regularly reminded readers of the bull case.

The iPod rumors are consistent with my own expectations. In fact, I think the rumors are a minimum requirement for Apple bulls in the near-term. December quarter iPod comparisons are extremely difficult as last year the company sold 21 million iPods, up 50% from the blowout 2005 holiday season. iPhones will help, especially due to the high average selling price (last year the phenomenal success of the Shuffle caused a serious drag on ASPs), but strong demand for traditional iPods is necessary to keep the over 30% of revenue driven off the music platform growing at a solid clip. iPod revenue was down 1% in the March quarter and up just 5% in the June quarter...

...I think that Macs will be really strong in the September and December quarters, enough to meet and beat street estimates. However, for significant upward momentum in Apple shares to be sustained at significant new highs, iPods must be contributing as well. For that reason, a strong new product lineup on September 5th is critical to the near-term investment case for Apple shares.

At a minimum, maybe the passing of September will usher I calmer era for Apple shares. 22 of the $29 trading days since July 19th have seen the shares have a daily range of at least $4, with many days reaching $4-6 or more.

Posted by Steve Birenberg at August 30, 2007 03:02 PM in AAPL