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Last Updated: Feb 18th, 2008 - 14:39:01 |
Sony versus Apple iPod
Overweight as evolution into growth-driven portfolio franchise accelerates next year.
Increased conviction due to: 1) low penetration of iPods, 2) further evidence of the “halo effect”, 3) expected new product introductions and 4) retail store expansion still in early growth stage. We’re raising our estimates to better account for recent margin performance as well as roughly 50% of the upside that we view likely (due to C06 new product introductions).
Statistically significant survey of 2,500 US consumers: Just 8% of US households surveyed own an iPod; 5% own a Mac. Given low penetration and continued signs of the iPod “halo effect”, people think meaningful US retail growth opportunities still exist. If people benchmark similar US retail store strategies, Apple stores could grow from 135+ today to 300+ over the next several years.
A recent survey points to a shift in demand towards iPod video and incremental interest for new forms of digital content (beyond just the iPod customerbase). A majority of industry experts don’t expect Apple computers to sit still as others take advantage of these opportunities.
The consumer technology shift away from home office and into the living room is one of our three core theses for 2006 (see our industry note published yesterday, titled “Technology Innovation Drives Positive Bias: AAPL, EMC and Dell Top Picks”). Industry analyst’s thinks Apple is hands down the best positioned to capitalize — from an ease of use, industrial design and digital content perspective. After pulling together data points from Apple headquarters and a statistically significant survey of 2,500 US consumers, it is being believe market share and new product opportunities accelerate even more than we expected in 2006. Many rating companies maintain Overweight on AAPL shares and increase our price target to $90 (from $70).
Experts continue to believe demand outstrips supply for iPods and that Apple is doing the best it can to supply both its own and traditional retail stores. The US consumers we surveyed plan to buy more iPod and related products than any other electronics category. To hone in on this point, more people plan to buy an iPod this holiday season than a cell phone. Also interesting, more people plan to buy iTunes gift cards this season than non-iPod branded MP3 players. What’s more, of those planning to purchase an iPod (either as a gift or for themselves) this holiday season, only a small percentage would purchase another brand of MP3 player if a store was out of their desired model. Importantly, none of the current iPod or MP3 owners surveyed would switch to another brand if their desired iPod was sold out. Experts believe this speaks wonders on iPod brand loyalty and ultimately ties consumers into an expanding portfolio of Apple products.
Interestingly, the iPod installed base appears set to skew towards the higher function iPod video. Demand for non-Music digital content also expands beyond just the iPod customer base. Experts believe this provides evidence that management of digital content in the living room is important to consumers and could drive incremental demand this coming year.
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