A pair of analysts see an end-of-the-year uptick in Apple's computer sales

Photo: Apple Inc.

"Our conversations with industry contacts suggest that the Mac shipment levels have improved over the last two weeks," writes J.P. Morgan's Mark Moskowitz in a report to clients issued Monday morning.

In that report, he raised his both his estimate for Mac sales in the December quarter (to 3.29 million from 3.17 million) and his Apple (AAPL) price target for the new year (to $230 from $220).

Piper Jaffray's Gene Munster, meanwhile, waited for Monday's data from the NPD Group to come to a similar, but slightly less bullish conclusion. Based on retail data for October and November that show Mac sales in the U.S. up 21% year over year, Munster estimates that Apple will sell between 2.9 and 3 million Macs before the end of the quarter. (The Street is looking for 2.85 million Macs.)

Munster is sticking with his $277 price target. Apple closed at $196.98, up 2.31 points (1.19%) for the day.

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An analyst describes the smartphone innovations he expects from Apple in 2010

Photo: Apple Inc.

In a note to clients issued Wednesday, Piper Jaffray's Gene Munster suggests three ways Apple (AAPL) can stay ahead of the coming wave of smartphones powered by Google's (GOOG) Android OS.

• Build an iPhone for Verizon. Munster continues to believe there's a 70% chance Verizon (VZ) will get an iPhone before the end of 2010. The value of more than doubling the phone's addressable market — i.e. adding Verizon's 89 million U.S. subscribers to AT&T's (T) 82 million — would more than justify the cost of manufacturing a CDMA iPhone, according to Munster.
• Give the iPhone a battery that lasts longer than one day. "Apple has introduced advanced battery technology with its portable Macs," he writes, "and we expect the company to dramatically improve the iPhone battery life with the next several hardware launches."
• Turn the iPhone into a digital wallet. Munster predicts that future iPhones will have built-in RFID (radio-frequency identification) technology, allowing them to make retail payments with a single swipe.

"We've just scratched the surface" in terms of apps and accessories, says Munster, who has an interesting take on Apple's continued resistance to Adobe (ADBE) Flash. He sees it as a slightly Machiavellian move with strategic implications.

"Apple has built a moat around their apps," he writes, "in part by excluding Flash, preventing app developers from building apps in Flash and porting them to all mobile platforms."

UPDATE: On Twitter late Thursday, Eldar Murtazin, the Moscow-based editor of Mobile Review, posted this cryptic note: "Foxconn received order for next generation iphone." Foxconn is the trade name of Hon Hai Precision Industries, which manufacturers most of Apple's products.

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Apple fell 2.6% on Dec. 1 in an ugly close that left investors deeply suspicious

Apple had already dropped sharply twice on Tuesday — once at 10 a.m. and again at 3:25 p.m. — when, 12 minutes before the close, the volume of trading suddenly spiked and the stock went into freefall.

More than 3.5 million shares changed hands in a fury of last-minute trading, and when the dust cleared, Apple had fallen 5.27 points (2.6%) for the day to close at $196.97. Nearly 3 of those points were lost in the final 12 minutes, when $2.66 billion of the company's market capitalization evaporated in less time than it takes to drink a latte.

What happened? That's for the SEC to determine, assuming they care. But investors were deeply suspicious. In a day when the Dow climbed more than 126 points, there was no news bad enough to trigger a raid on Apple, no downgrades or negative analyst reports.

There was, however, some interesting back-channel chatter on the finance boards and among hedge fund managers. A partial timeline:

• 3:24 p.m. A message posted on Yahoo Finance's AAPL board mentions a "potential UBS downgrade"
• 3:26 p.m. Another Yahoo rumor, this one that Piper Jaffray's Gene Munster, a long-time Apple bull, is set to downgrade the stock this week.
• 3:28 p.m. TheStreet carries a brief note from hedge fund Manager Timothy Collins that reads in full: "Call me crazy, but I think Apple (AAPL) actually tests $195 (give or take a few cents). I will be a buyer on any bounce off that level, but I am holding off buying here. Just food for thought."
• 3:48 p.m. Yet another Yahoo Finance post, since deleted by Yahoo, claims that Apple is recalling large numbers of iPhones due to battery problems.

There's plenty more where that came from, including rumors that Steve Jobs needs another organ and that Apple's Cyber Monday sales were terrible. (In fact, traffic at its online store was up 39% year over year on Black Friday and 71% on Cyber Monday; see here.)

Yahoo Finance's chat rooms, of course, are notorious breeding grounds for disinformation, a place where day traders toss around rumors and insults in cryptic messages that are impossible to trace. It's unlikely, however, that any of the participants in this game have holdings deep enough to move a few million shares.

Timothy Collins, however, is in a different league. He's a hedge fund manager who writes for a website started by Mad Money's Jim Cramer, a man with a long history with Apple (see here and here). Reached on Wednesday morning, Collins denied having a hand in triggering a run on Apple.

"Though I am flattered that Apple investors think I have that much influence," he wrote, "it does give me a chuckle.  I think the reason for the stock drop had more to do with a piece at 2.50pm EST. [Here he inserts a link to an AppleInsider story about speculation that the iPhone is going next to T-Mobile, not Verizon.]"

Piper Jaffray's Munster, for his part, dismisses the possibility that this or any other Apple story was the catalyst for the raid. "In my opinion investors were stretching for reasons," he told the Wall Street Journal's Matt Phillips. "My take, there was a big seller for who knows what reason. People got worried they were missing something, and the stock tumbled."

One more note: Bloomberg reported Monday that since August, hedge funds have been "shoveling money into stocks as individuals exit at the fastest rate in a year." The funds' most popular stocks, according to Goldman Sachs’s survey of regulatory filings: Pfizer (PFE), Bank of America (BAC) and Apple.

"Yes, hedge funds are buying stocks," Morgan Creek Capital Management's Mark Yusko told Bloomberg. "But they’re also shorting stocks in record numbers and buying put options in record levels."

Apple shares bounced back in after-hours trading Tuesday and opened higher on Wednesday. By midmorning, shares were going for $201.23, up 4.26 points (2.1%) from Tuesday's close. By the end of the day, however, Apple was back down to $196.23.

It also ended the day in the No. 1 spot on the Wall Street Journal's "Buy on Weakness" list. See here.

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Apple's in-store sales fell sharply from 2008, but its online store traffic soared

Apple's busy Fifth Ave. store. Photo: ped

A pair of reports from Piper Jaffray's Gene Munster tell the story.

The first, issued early Monday morning, gave the results of a headcount performed at three Apple (AAPL) retail stores on Black Friday, the traditional start of the holiday selling season. Although the stores were busy, his team counted an average of 8.3 Mac sales per hour, down 36% from the 13 Macs per hour they observed on the same day last year.

Munster's second note, sent nearly seven hours later, reported on comScore data indicating that sales at traffic on Apple's online store Friday was up 39% year over year.

"Apple's online store had a big day on Black Friday," Munster concludes, "offsetting the y/y decline in our retail store checks."

Based on NPD data that showed U.S. Mac sales up 7% year over year in October, Munster had previously estimated that Apple would sell 2.856 million Macs in the quarter that ends Dec. 26. That's up from 2.524 million Macs in the same quarter last year, but down from the record 3.053 million Apple sold last quarter.

UPDATE: More field checks and estimates below the fold from Kaufman Bros.' Shaw Wu, Thomas Weisel's Doug Reid and Deutsche Bank's Chris Whitmore.

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These just in:

• Wu writes: "Our field checks indicate strong foot traffic at Apple stores and that Macs, iPhones and iPods saw strong uptake … We believe our forecast looking for 2.9 million Macs is likely conservative. Currently, consensus estimates look for 2.85 million Macs."
• Reid's team did store checks at 41 authorized retail locations in the U.S., Canada and the U.K. and came away with "increased confidence" in his estimate of 3.06 million Mac sales this quarter, up 21% year over year.
• Whitmore's team got the shoe-leather prize, conducting store checks over Black Friday weekend at more than 120 Apple retail stores and 25-plus AT&T outlets. He concludes that both Macs and iPhones are tracking "in-line to above" his unit estimates (8.5 million iPhones and 3 million Macs) while iPods are tracking "roughly in-line" with his estimate of 23 million.

CORRECTION: Several news sites — including this one — repeated Munster's assertion that Apple's online sales on Black Friday increased 39% year over year. But comScore's report clearly states that it was measuring Apple.com's unique visitors, not its online sales. See here.

Analysts adjust their Chinese iPhone estimates following sales that one describes as "soft"

iPhone buyers in Guangzhou. Photo: iPhonAsia

Following press reports that China Unicom (CHU) only managed to sign up 5,000 new iPhone subscribers after four days of sales, Piper Jaffray's Gene Munster and Barclays Capital's Ben Reitzes each issued notes to clients Tuesday that tried to put a positive spin on the news.

"The China launch is a disappointment," Munster acknowledged. But he added that it reminded him of the launch of the original iPhone in June 2007, when reports that AT&T had activated only 146,000 iPhones in two days caused "unfounded concerns among investors" about the device's long-term potential.

Doing some quick back-of-the-envelope calculations, Munster estimates that 1,500 iPhones per day works out to 550,000 per year — considerably less than the 1 to 2 million iPhones he had expected Apple (AAPL) to ship to China in 2010. But he anticipates that the cost of unsubsidized iPhones in China (currently about $800) will come down, and he's sticking with his prediction that Apple will sell 9.2 million iPhones worldwide in the current quarter and 36 million in calendar 2010.

Similarly, Barclays' Reitzes expressed confidence in his report that with additional carriers, demand for the iPhone in China could "ramp up to multiple millions" over time.

Meanwhile, iPhonAsia's Dan Butterfield, sampling Chinese language press reports from the 30 provinces where the iPhone went on sale last weekend, suggests that the launch might not have been the bust it's being portrayed as.

"Despite western media predictions that the iPhone launch in China would be met with a yawn," he writes,  "there were many enthusiastic buyers at iPhone retailers. The Suning store at Nanjing Commerce Plaza had some 1,000 visitors on launch day."

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Photo: Apple Inc.

Several analysts waited until Monday morning — the same day Apple (AAPL) is scheduled to release its quarterly earnings report — to send clients their estimates of the company's unit sales (see here). But Piper Jaffray's Gene Munster waited longest of all.

Munster released a note at 1:54 p.m. Eastern — about two and a half hours before Apple's results are due to hit the wires — with his latest estimates for Mac and iPod sales.

He was waiting for data from the NPD Group, which surveys U.S. retail outlets and reports sales of a variety of goods — including electronics — on a monthly basis.

According to Munster, NPD data for the past three months show domestic Mac sales up 13% year over year, which implies unit sales of 2.85 million to 2.9 million. Factoring in international markets, however, Munster suggests that total Mac sales probably grew somewhere between 9% and 11% year to year — roughly double the 5% growth the Street is expecting.

The news for iPods was not quite so encouraging.

Munster's analysis of NPD data for the quarter shows iPod sales down 19% year to year. That suggests unit sales between 9 million and 9.5 million, somewhat below the Street consensus of 10 million. With iPods sales growing faster overseas than they are in the United States, Munster expects Apple to report iPod numbers somewhere in between the Street's 10 million consensus and the 9-9.5 million implied by NPD's data.

Munster thinks Apple will confound the naysayers and once again report a strong quarter driven by impressive Mac and iPhone sales. But he has not changed his earnings estimate ($1.37 per share, slightly below the Street's $1.42) or his price target ($235).

[Follow Philip Elmer-DeWitt on Twitter @philiped]

How to make sense of the forward-looking statements in next week's earnings report

If history is any guide, traders will reward or punish Apple's (AAPL) shares in after-hours trading Monday based not on the quarterly earnings it reports, but on what the company says about the quarter to come — which will almost certainly be disappointing.

You would think by now that Wall Street had figured out that Apple guides conservatively — which is to say, it low-balls its earnings and revenue numbers for the coming quarter so that it can blow them out of the water three months later.

But in case it hasn't, Piper Jaffray's Gene Munster on Thursday issued his quarterly guide to Apple's guidance, in which he tries to predict — based on past performance — precisely how much below (or in rare cases, above) the Street's expectations we can expect Apple's predictions to fall.

The charts on which he bases his estimates are pasted below the fold. Bottom line: Munster expects "a typical Apple guide," with the mid-point of its December earnings-per-share guidance around $1.68 (12% below the Street's $1.91 consensus) on revenues of  $10.98 billion (4% below the Street's $11.44 billion).

Below: Munster’s spreadsheets for the past 13 quarters of earnings and revenue guidance.

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How much will Apple's (AAPL) reported earnings be affected by the new accounting rules approved Wednesday?

A lot, says Piper Jaffray's Gene Munster.

In a note to clients issued early Thursday, Munster offered his estimated earnings per share under the new and old rules for fiscal years 2009 (which ends in two days) and 2010:

• 2009 EPS: $8.21, up from $5.71  — a 43.8% increase
• 2010 EPS: $8.90, up from $6.00  — a 48% increase

Apple wouldn't be required to switch to the new accounting method until Dec. 2010, but Munster expects the company will start as soon as possible, probably with the new fiscal year that begins next week.

"While this has been expected for the last month, we believe this will be a positive for shares of AAPL," he wrote, before raising his price target to $235 from $186.

Of course it's possible that the impact of the rule changes have already been factored into Apple's share price. The stock closed Wednesday at $185.50, having soared 137% over the past eight months. The stock is up more than 10% since Aug. 31, when Munster first reported that the Financial Accounting Standards Board (FASB) task force was considering the rule changes.

What are the new accounting rules? Munster does a pretty good job of explaining them:

He writes:

"Before yesterday's ruling, any product that offered free upgrades to software and services installed on a device like an iPhone required subscription accounting (revenue deferred over 8 quarters in the case of the iPhone and Apple TV). However, the vast majority of the value of the device was realized at the time of purchase. While the value at the time of purchase as a percentage of the purchase price is debatable, we believe about 90% of the value of an iPhone is realized at the time of purchase. Under the previous rules, Apple was only allowed to recognize 12.5% (1/8th) of the revenue from each sale; under the new rules, the percentage will be decided on a case-by-case basis for each given product."

That case-by-case factor means that Apple's earnings under the new generally accepted accounting principles (GAAP) won't be exactly the same as the non-GAAP earnings it's been reporting (alongside GAAP earnings; see chart below) for the past year — but they will be a lot closer. Under the previous accounting rules, says Munster, there was about a 35% difference between the two. Under the new rules, he expects the difference to be closer to 5%.

These and other issues related to the accounting changes are likely to be hot topics of discussion at Apple's next earnings call with analysts, sometime in October.

Below: A chart of GAAP vs. non-GAAP earnings for Apple's third fiscal quarter, courtesy of Kaufman Bros.' Shaw Wu:

Source: Kaufman Bros.

See also:

• Accounting board votes 5-0 for pro-Apple rule change
• Accounting rule change in Apple's favor
• Apple pops on Mad Money report
• Spotlight on Apple's hidden revenue stream
• The day Apple released its iPhone revenue bomb
• Deferred earnings: Apple's hidden revenue bonus

Steve Jobs, Oct. 2008. Photo: Apple Inc.

Apple hasn't confirmed it — and not every analyst agrees — but Piper Jaffray's Gene Munster seems pretty certain that Steve Jobs himself will introduce a new line of iPods next week.

In a note to clients Tuesday morning, Munster describes the substance of Apple's (AAPL) special music event — scheduled for Wednesday, Sept. 9 — as a "non-event" from Wall Street's point of view.

Investors, Munster says, are not likely to be impressed with new iPod nanos, iPod classic and iPod touches re-designed with cameras because "as iPod growth slows … the segment becomes less of an investable theme." (That may be true of the classic and the nanos, but sales of iPod touches grew 130% last quarter year over year.)

Jobs' return, however, is likely to be greeted by the Street as "a slight positive" for Apple's shares — "the first public confirmation of Jobs' health since his return to the company," according to Munster.

Jobs last appearance at an Apple event was on Oct. 14, 2008, when he introduced the unibody MacBooks. In January he took a medical leave to replace his failing liver.

Other possible announcements next Wednesday, according to Munster:

• A new version of iTunes with integrated social networking features.
• Changes to the iTunes Store, including new music features with richer album artwork.
• Expanded TV and movie options on iTunes with more available content and/or better viewing rights for multiple devices.

Munster expects Apple will eventually launch a monthly subscription for TV shows and a tablet computer, but not next week.

UPDATE: Kaufman Bros.' Shaw Wu weighed in later Tuesday morning with a different take on who will be presenting next week:

"The keynote speaker(s) were not announced but we believe it will most likely be Phil Schiller, SVP of worldwide product marketing, who mostly recently handled both MacWorld and WWDC events. It is not clear that Steve Jobs will present but most would welcome his appearance as a positive surprise."

Photo: Apple Inc.

As expected, the latest update to Apple's (AAPL) flagship Macintosh operating system — Mac OS X Snow Leopard — is going on sale Aug. 28 for the previously announced price of $29. (Press release here.)

Piper Jaffray's Gene Munster has done some quick back-of-the-envelope calculations and concluded Apple is in it less for the money than for the strategic advantage it hopes to gain over Microsoft's (MSFT) Windows 7, schedule to ship in October.

According to Munster, Apple is likely to sell 5 million copies of Mac OS X v10.6 in the remaining month of its fiscal fourth quarter for an average selling price of of $22 — less than $29 and more than the $9.95 Up-to-Date price Apple has offered customers who bought MacBook Pros after June 8.

At 60% gross margin, that comes out to $66 million, or $.05 per share — a bump that Munster believes has already been baked into the Street's Q4 estimates.

So what's really going on here, he asks rhetorically?

Despite the long list of improvements Apple is touting — it claims to have "refined" 90% of the more than 1,000 "projects" that make up the OS X — Munster describes Snow Leopard as "a minor upgrade … without many significant new features."

In Munster's view, Apple is using Snow Leopard as

"an opportunity to sell it at a lower price ($29 vs. $129 previously) and market the new OS as a selling point for the Mac platform over the Windows platform. In other words, Apple is promoting the Mac platform as a superior alternative to Windows in terms of newer technology, more frequently, for less money. The release of Snow Leopard is not about new features; rather, it is about keeping Mac users up to date with the latest technology vs. Windows XP and Vista users on antiquated technology."

You can learn more about Snow Leopard — including what's new, compatibility and tech specs — at Apple's website here.