American Technology Research analyst Shaw Wu has chimed in with his musings following Apple’s announcement of a recall of the ultra compact USB power adapter for its 3G iPhone.
The good news is that analyst doesn’t seem a whole lot worried – Apple is a stock to buy with a $205 price target, Wu writes. And the recall is just a minor bump, a "non-event" he cautions clients. Take a look for yourself as we’ve repeated his assertions within this post.
Oh – and Wu expects new Macs to take a bow at an Apple special event this autumn – in the next few weeks, perhaps? And what is the ‘brick’?
"Late Friday (09/19/08), AAPL announced an exchange program for its ultra compact USB power adapter for its 3G iPhone after reports that its metal prongs could break off and remain in a power outlet, causing risk of an electric shock. We checked in with our supply chain sources and we have the following analysis points:
Doing The Right Thing Even Though Impacting Small Number of Users. While we view this as negative with headline risk, this appears to be impacting only a small number of users. Nonetheless, we believe AAPL is doing the right thing in offering a free product exchange and maintaining a high level of customer service.
Little to No Disruption; 8 GB Models Sold Out.
We have found little to no disruption of iPhone shipments (in fact we found several stores that were sold out of 8 GB models). What AT&T and AAPL stores are doing is removing the power adapter and selling the 3G iPhone without it. They are telling users that new adapters will be ready starting October 10.
Most Use USB Cable To Charge Anyway.
The reason why we don’t view this as a big deal is that most users charge their iPhones using the USB cable connected to their PC and/or Mac as they sync content with iTunes software.
Doesn’t Seem To Be A Chip Issue.
With the super small form factor, it appears it is not as durable as the previous adapter. This doesn’t appear to be a semiconductor issue, but rather that the metal prongs were not set in strong enough.
New iPhone 2.1 Software Appears To Have Reduced Problems.
On a side note, AAPL’s new iPhone 2.1 software/firmware update that was released about 10 days ago appears to have reduced the issues a small number of 3G iPhone users have had, including dropped phone calls.
Conclusion: Maintain Buy rating as we believe that AAPL remains one of the best positioned large-cap technology companies. We see upside to $205 based on 31.5x our CY09 EPS of $6.52.
New Macs Likely At A Later Event:
We continue to believe that MacBook Pro and MacBook are due for refreshes with more radical redesigns, likely at a special event later this fall. In addition, we are picking up that MacBook Air could see a minor refresh and potential price cut to increase its value proposition as build plans have slowed from earlier robust levels as customers have opted for MacBook or MacBook Pro instead.
Competitive Advantages Intact:
We believe AAPL’s key competitive advantages remain its 1) strong brand loyal customer base; 2) vertically and horizontally integrated hardware, software and service model (iPod + iTunes, Mac, Apple TV, and iPhone); 3) proprietary interface technologies (clickwheel and multi-touch); and 4) unique and pleasant customer experience with its Apple stores.
Macro headwinds are becoming more apparent:
We continue to see AAPL as the best play on digital media in the home and a large beneficiary of the shift to mobile computing. In two of its three big franchises, Mac and iPhone, penetration is very low and starting in the higher-income demographics. The disturbance in the macroeconomic environment is within lower-income demographics and financial institutions with exposure to and impact on overall liquidity. This could certainly spread, but we believe AAPL’s business will remain strong in the near- to medium-term. Enough high-end consumers are still buying tech, though commodities inflation could pressure future margins.
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