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Wall Street Remains Clueless as Ever as to Apple’s Products
Posted By Barry Ritholtz On January 14, 2005 @ 10:42 pm In Investing,Web/Tech | Comments Disabled
Just last year, one PC analyst at a bulge bracket firm suggested Apple sell itself to Sony. Another suggested that Apple start producing Windows machines, or use Intel chips.
This is part of a long term misunderstanding of Apple by the Street. Most of them don’t “get” Apple; They certainly haven’t been able to figure out Steve Jobs. And since all but one (that I know of) work primarily on a Windows machine, they never really understood what the fuss about the Mac was all about.
Until the iPod came along. Apple created a category killer by engineering a marvelous piece of user friendly technology made from essentially off the shelf components. The secret sauce was their terrific user interface. That forced some Analysts to start getting clued into what the cult of Macintosh was all about.
But what about this new Mac mini?
Understand what Apple is doing with the mini:
1) It’s a Windows replacement machine;
2) Geeks like it!
3) It’s potentially the centerpiece for a Home theatre 
4) It’s a cheap 2nd Apple for faithful MacHeads
Let’s focus on #2 today (#1 will be the subject of a Street.com column later this week).
In the old days, geeks recommended Windows because they were a “standard,” they let admins under the hood pretty regularly — and they were cheap.
Indeed, the original name for Windows 95 was “the IT department full employment act.”
It was buggy, difficult to maintain, vulnerable and crash prone – but
it was the industry standard. Any IT guy you spoke to in the mid 90s
would tell you how much cheaper the Wintel machines were to buy, how
much more software there was for it.
he didn’t tell you was how much higher the cost of ownership was –
namely his salary. Its eventually became his entire support staff’s
The result of that “bias” has been costly to maintain PC networks in most offices, and unsupported PCs in most homes. Every home PC user who has ever had a major Windows headache – security issues , virus infections , corrupted ini files , missing dll library – is desperate for an easy to use alternative.
Here we are a decade later, and a new generation of younger IT employees have inherited these headaches from their predecessors. And, to judge by the geek blogs and websites, they are none to happy about it. From Malware to spam hijacking to Explorer vulnerabilities, keeping a windows network running – or even a single internet connected machine – is a time consuming, frustrating job.
For what most people use their PCs for – email, internet surfing, music playing / CD burning, word processing – this is all the machine they need.
And Geeks like it! They really like it! — And they are key influencers of purchases by many people . . .
Some Wall Street comments on Apple’s earning:
Apple shipped 337,000 G5 iMacs, above our 200,000 estimate, providing evidence Apple is successfully converting higher awareness into computer sales. We have long viewed this as the key for sustainability of Apple’s longer-term story. Apple’s first-quarter results provided evidence the company is successfully re-establishing itself as a viable competitor in its core segment (computers), thus moving beyond the iPod’s hype.
– Joel Wagonfeld, First Albany Capital, who maintained a “buy” rating on the stock
The focus of our more positive view is CPU growth from both the demand and supply side – we have conducted exit interviews at Apple stores and two proprietary surveys with over 775 responses, and believe that Apple can grow its consumer share. Our survey work indicates strong brand appeal and interest in converting from Windows systems to Macs based on better media capabilities and virus protection.
– Keith Bachman, Banc of America Securities, who his raised rating on Apple shares to “buy” from “neutral” and raised the price target to $85 from $75
Macworld turns out to be only the appetizer to a much bigger earnings feast. … While there is anecdotal evidence of the pull of iPod starting to translate into incremental Mac sales, the only way to gauge whether there truly is the beginning of a halo effect is to see it in a quarter without channel fill and major seasonality, such as the March quarter. With the frenzy around Apple back in force, we are hard pressed to suggest stepping in now with fresh money, even as the shares are likely to move higher today based on short covering and estimate increases.
– David C. Bailey, Laura Conigliaro, Goldman Sachs, who have a “in line” rating on the stock
We’re still gauging the right multiple for Apple — a function of visibility, execution and competition. Despite strong music growth, we didn’t stretch our 25-times multiple given low visibility into new products and lack of evidence to support a “coattails effect.”
– Andrew J. Neff, Bear Stearns, who is increasing his price target to $87, and reiterating his “outperform” rating
While PC shipments were generally in line with our aggressive estimates, we note that Apple grew total PC unit shipments 26% year over year, roughly 2 1/2 times the rate of the world-wide PC market. This is the first quarter displaying irrefutable evidence of an iPod “halo effect” on PC sales, in our view.
– Richard Gardner, Smith Barney, who has a “hold” rating on the stock
Analysts React 
Compiled by Tim Hanrahan
WSJ, January 13, 2005 10:57 a.m.
Article printed from The Big Picture: http://www.ritholtz.com/blog
URL to article: http://www.ritholtz.com/blog/2005/01/wall-street-remains-clueless-as-ever-as-to-apples-products/
URLs in this post:
 Image: http://www.ritholtz.com/blog/wp-content/uploads/2005/01/Apple-doc.jpg
 centerpiece for a Home theatre: http://www.pvrblog.com/pvr/2005/01/mac_mini_a_kill.html
 security issues: http://www.techuser.net/winsecurity.html
 virus infections: http://aroundcny.com/technofile/texts/tec082904.html
 corrupted ini files: http://www.informit.com/articles/article.asp?p=24594
 Analysts React: http://online.wsj.com/article/0,,SB110562327596625238,00.html
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