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The Cody Blog: CW on RM: Slicing Up Apple's News

Friday, September 08, 2006

CW on RM: Slicing Up Apple's News

Slicing Up Apple's News
09/08/2006 11:52 AM

So the tech, media and investment worlds are holding their collective breath in outsized anticipation of what Apple will reveal in the announcement on Sept. 12.

Its stock has been pretty strong lately, especially after bottoming amid the options controversy in the middle of the summer. (You know, the "Hey, don't worry about the options scandal because Steve Jobs canceled those options after they were totally worthless, and we gave him tons of valuable stock to replace it!" revelations.)

The Street seems to have convinced itself that the risks surrounding those options irregularities have passed, though I have my doubts about that. Therefore, the focus has moved back to the fundamentals and new product potential. As good as Apple's fundies are and as uniquely positioned as it is for meaningful new product introductions, the stock's been rightly moving higher.

Tuesday's announcement will most likely include something about how Apple will offer downloadable movies at the iTunes storefront. Traders who are looking for a pop next week had better hope for more than that because expectations for this announcement are running rampant. Here are some possible new products and what I'd expect the stock to do, based on each potential new product:

  1. A living room computer that enables easy downloading of content from the Internet and iTunes, perhaps even playing high-definition content. If there's anything besides movie downloads from iTunes in the announcement, this is what I'd expect. The stock would probably hang tough around $73 or so if this gets rolled out.

  2. An iPod phone. An Apple-branded phone that really is a full-on video iPod would be a huge, huge hit. I don't expect this rollout yet, but if it were to happen Tuesday, I'd look for a 5% to 10% pop in the stock.

  3. A new lineup of video iPod and/or iPod nanos. If the announcement is about new iPods that aren't phones, they sure as heck better have something else awesomely compelling about them. Bluetooth enablement won't be enough -- neither will a touch screen. I'd look for 5% hit if it's "just" new iPods and downloadable movies.

  4. Miscellaneous. If something comes out of left field, that would surprise just about everyone, including me. The stock's action would obviously depend on just how cool (or uncool) the product is.

  5. Just movie downloads. The market is expecting more than this, and if it's just movie downloads from iTunes, I figure a hit of about 5%.

The upshot is that this isn't exactly a good risk/reward for a trade, as most scenarios that I expect to play out next week entail some downside. Part of the reason for my pessimism is the way the market has just not been trading well and seems to be selling most news.

I still own a decent bit of Apple from much, much lower levels and continue to hold it as the long-term outlook -- as long as the options debacle doesn't kill it -- is very bullish. But I wouldn't want to flip it for a trade into next week.

By the way, the last time the hype got this big was right around the time Apple announced its stupid iPod HiFi system. I had gone on CNBC before it was announced and downplayed it.


Anonymous maximo zeledon said...

So, Hollywood has decided to enter the Internet Age. It’s funny how backward the content business can be. Two years ago my boss at Sony Pictures swore this would never happen. “There’s too much risk and you can’t shit on your distribution partners.” Blah, blah, blah. Maybe he was just reciting the official corporate spin…or trying to keep morale up in a year full of theatrical flops. It’s the same everywhere. Just talk to the folks at AOL.

Anyway, Cody seems to think this download movie thing might not be enough for Apple to rise to new heights and I completely agree. Amazon.com just opened its own digital movies store and it looks good. So there is competition from the start. This is not like iTunes or the ipod. Amazon has a loyal fan base and they won’t go to Apple. There is also the Peer-to-Peer side (Peerflix), and Blockbuster to consider here. I’m sure they are working on a download store as well. My view is that Apple is finally running out of ideas. Don’t get me wrong, I think they have managed to do some amazing things from a technical and creative standpoint, but I think the party is over. At least for now. Design challenges with the successor to its video iPod have been reported all summer. Good thing they have 75% market share in the U.S. otherwise they would be in trouble.

Nevertheless, the competition is also speeding forward—Microsoft for example will have its first Zune-branded device (a hard drive-based player with built-in Wi-Fi--in time for the holidays). Also SanDisk last month announced an 8GB version of its Sansa player—offering a device with more storage than the Nano or any of its major flash memory-based rivals. So the competition is real, but more importantly is the quality of these devices. They’re catching up. The metaphysical element of cool is no longer a sole possession of Apple. Sure, the holistic music experience is still Apple’s competitive advantage, but that too can change. Robbie Bach is betting on it. Things change in the blink of an eye in the tech business….ask Michael Dell.

But Tuesday is intriguing. Now, one of the things you didn’t mention on your list of possible product launches, Cody is the possibility of a game console. Imagine a portable gaming device to rival the Sony PSP. That would be a total surprise. It also makes more business sense than getting into the hyper-competitive cell phone business. The LG's Chocolate is the real deal and will most likely win the music-cell phone race since it is a huge hit win teens. I gave up my Sony Ericsson Walkman for the LG Chocolate. It’s amazing. More importantly, console and handheld videogame sales have been increasing 24.2% year over year (preliminary data from NPD Funworld). That’s serious money. The handheld side has room to growth. And Apple does have the resources to do it well. I’m sure they are thinking about it.

9/08/2006 11:00:00 PM  

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