Apple: Verizon iPhone Nears; iPad 2 Not Far Behind

Here we are, just a few days before the giant Consumer Electronics Show gets rolling in Las Vegas, and what company is generating the most buzz? The one that won’t be there.

Once again this year, Apple (AAPL) will be a no-show at CES. And once again, no company will generate more attention.

Business Week reports that Apple could hold a product launch event for the much-anticipated Verizon Wireless version of the iPhone by Valentine’s Day, or sooner. The second-generation iPad might not be far behind. (Or maybe we’ll get both at the same time.) And the company carefully chose January 6 – the first full day of CES – to launch the Mac version of the App Store. Just a coincidence, I’m sure.

TechCrunch has this nailed, writing that “this year, the CES buzz-kill may be more intensified as there are not one, but two key Apple products expected to be announced shortly after the expo.” But the Apple influence on the show is far greater than two pending product announcements. The company basically sets the agenda for the consumer electronics industry. Tablets. Smart phones. Digital music and video. Want to know where the future of consumer electronics is headed? Take a walk around an Apple retail store.

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What Happens To Apple’s Stock If Steve Can’t Return?

Tomorrow morning, Apple shares are going to get clobbered following the news that CEO Steve Jobs is taking a third medical leave. Several aspects of the announcements are bothering the Street. One, he’s making no promise this time on when he might come back – last time, Apple said he’d be out six months, and that’s how long he was gone. And two, there’s something sad and worrisome about his comment that “I … hope to be back as soon as I can,” which implies, well, maybe he won’t be back so soon, or maybe at all.

With the stock market shut down today for the Martin Luther King holiday, the reaction from the analyst community has been fairly limited so far, but you can be sure that there will be a burst of commentary tomorrow morning, and another round Wednesday morning after the company reports December quarter results after the close on Tuesday.

My discussions with analysts so far suggest fairly widespread concern that this time, Steve might not be coming back – that his health problems simply aren’t consistent with someone dealing with the pressures of running a company pushing $100 billion in annual revenues. And there also is some anticipation that for anyone who has been waiting for a chance to buy the stock, tomorrow morning’s anticipated sell off could provide the perfect entry point.

Gleacher & Co. analyst Brian Marshall said in an interview that he thinks the stock tomorrow could test the $300 level – which would be a drop of around 15%, knocking $50 billion in market cap from the company’s valuation. At that, point, he said, the stock would basically be trading at 12x his forecast of $22-$23 a share in profits for calendar 2011, given the company has about $55 a share in cash – and would offer a good entry point for investors. Marshall’s assessment is that there is no better than a 50/50 chance that he comes back this time as a full-time CEO. “My belief is that this is the last time we’ll probably see Steve as CEO,” he says. “I expect Tim Cook to be named CEO sometime this year.”

Gene Munster, an analyst at Piper Jaffray, says that despite the wording of the release, investors fear there is something more serious happening this time. Munster says he’s always thought that the stock would take a 10% hit in a post-Steve world – and in European trading, the shares are trading down 6%-8%. He’s expecting a 5% fall in U.S. trading tomorrow. In short, investors are treating the stock as if Jobs already has stepped down from the top job.

In an interview, Munster notes that from a day-to-day management perspective, replacing Jobs with Cook as CEO would change nothing; he notes that Cook has effectively been running Apple since Jobs returned from exile in 1997. Munster thinks there would be little immediate impact on the Apple org chart from such a change, although he notes that key players would gain in stature inside the company, including product design guru Jonathan Ive. The real issue will be that “Jobs is irreplaceable…his product inspiration, no one can touch that.”

On the other hand, he also notes that “we’ve been through this before, and historically, it has been a buying opportunity.” The company’s game plan for the next 1-2 years is already in motion. If the stock really does open down 10% or more tomorrow, he says, it will be a buying opportunity. The longer term question, he says, is how the possibility of Apple without Jobs will affect the P/E multiple investors are willing to pay for the stock. Munster notes that there is an “optionality, wild-card potential” to Apple with Steve at the helm, the idea that he might launch the company into a giant new market at any particular moment, that is factored into the stock.

As for tomorrow afternoon’s earnings report, Munster says the message is likely to be that “things are going great.” He expects a lot of good financial news. And he says the bottom line message will be that Apple is “effectively taking over the technology world,” as it spreads its wares from the developed market into emerging economies. “Whether the stock is up or down on Wednesday [after earnings and the Jobs news] is in some ways irrelevant,” he says. “What is more important is the broader theme, which is that they are taking over the world.” Even if Steve is cheering Apple on from the sidelines.

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Apple Plots Move To Expand iPhone’s Market Share

Apple (AAPL) continues to plot new moves in its campaign to conquer the world.

In a research note this morning, Bernstein Research analyst Toni Sacconaghi reports on a meeting he had last week with Apple COO Tim Cook, CFO Peter Oppenheimer and VP of Internet Services Eddy Cue. His high level takeaway is that the executives “projected a very confident tone,” and that Apple is focused on “the right things,” in particular expanding the market for the iPhone and capitalizing on “explosive” tablet demand.

Here are some key points from Sacconaghi’s report:

    * Cook referred to the iPhone as “the mother of all halos,” noting that the iPhone has expanded Apple’s sales of other products, particularly in emerging markets.
    * The analyst says Cook “appeared to reaffirm the notion that Apple is likely to develop lower priced offerings” to expand the market for the iPhone. Cook said the company is planning “clever things” to address the prepaid market, and that Apple did not want its products to be “just for the rich,” and that the company is “not ceding any market.”
    * Cook noted that the company has spent “huge energy” in China, a “classic prepaid market.”
    * Cook indicated that the tablet market would be much bigger than the PC market. Sacconaghi concludes that if so, it could eventually be a $60 billion to $100 billion business for Apple alone. Cook also said he expected intense competition in tablets, more so than in smart phones, with all PC and smart phone vendors likely to participate, but he added that Apple has a strong head start, and that it has interesting new things in the pipeline. (Note that Apple will hold an iPad product event on Wednesday morning in San Francisco.)
    * Carrier expansion is a priority for Apple. Oppenheimer noted that Apple has only 175 carriers today, versus 550 for Research In Motion (RIMM). Last week, the company added SK Telecom in Korea.
    * Oppenheimer conceded that Apple’s capital structure was not efficient. He also indicated that Apple would likely continue to use its balance sheet to do partnerships to secure supplies of key components.
    * Cook said he felt that iPhone was just below food and water on Maslow’s hierarchy of needs, and that ultimately all phone would be smart phones.

AAPL this morning is up $5.53, or 1.6%, to $353.69.

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Apple’s Big Mistake

Apple (AAPL) doesn’t get much wrong. (At least, not lately.) They produce great products (including the sleek MacBook Air on which I’m writing this post, and the iPhone 4 in my shirt pocket), they are brilliant marketers and genius engineers, and they understand consumer behavior better than any company extant. They have the world’s most respected CEO, and some of the most sought after products on the Earth.

But occasionally, they screw up.

In a research note Tuesday, Piper Jaffray analyst Gene Munster asserted that Apple has actually made “two meaningful errors” since it launched the iPhone business in 2007. For one thing, he notes that the company did not originally subsidize the phone, although he notes that the company quickly fixed that issue by cutting the price of the original iPhone shortly after release, and then offering iPhone 3G at a subsidized price a year after the first version launched. That issue is no more.

The other mistake, Munster maintains, is that Apple signed an exclusive U.S. distribution agreement with AT&T (T). In short, he contends that the decision has limited demand. Like almost every one else who follows the company, Munster maintains that the company is likely to fix this issue before the end of the 2011 first half, by adding Verizon Wireless (VZ, VOD)  to the list of carriers that sell the phone. Munster notes that the U.S. is the only remaining country of the 89 nations in which the iPhone is sold in which a carrier still has exclusive rights to sell the phone. (He notes that in some countries, like China, only one carrier sells the phone so far, but that the agreement is not exclusive.)

That second mistake hints at what I think was the real error: by waiting so long to offer the iPhone on Verizon, the company essentially set the stage for the huge success to date of phones based on the Google (GOOG) Android OS. Verizon Wireless is the largest U.S. wireless carrier; with the iPhone unavailable to the company’s customers, Android has been able to take substantial market share among Verizon smart phone customers. Would Android have anywhere near its current market share if Apple had introduced a Verizon iPhone 12 months ago? No, is the obvious answer.

Munster, while noting that Android phones are outselling iPhone in the U.S. right now, contends the trend can be reversed. He points out that in countries where the iPhone is on multiple carriers and competes with Android, the iPhone outsells Android phones. “The greatest factor in the success of Android has been Verizon,” Munster writes. “Customers are loyal to their carrier, and once Verizon gets the iPhone, we believe Android’s success in the U.S. will be tested.”

We should find out whether that’s true or not sometime early in 2011.

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Apple’s Next Multi-Billion-Dollar Business: Connected Televisions

For more than a year now, Piper Jaffray analyst Gene Munster has been insisting that Apple (AAPL) is plotting a move into the television business – and soon. He thinks the company will start selling TV as soon as the end of calendar year 2012.

Munster was at it again on Thursday, asserting in a research note that Apple “will enter the TV market with a full focus, as an
all-in-one Apple television could move the needle when connected TVs proliferate.”

Munster estimates that the flat panel TV market will be 220 million units in 2012, and that 48% of those, or about 106 million, will be Internet connected. He thinks Apple could sell 1.4 million units, adding $2.5 billion in revenue, growing to $4 billion in calendar 2013, and $6 billion in 2014.

Among other factors, Munster points to recent news that the company has been paying up to secure a major supply, of…something. And he thinks that something involves displays.

“On Apple’s most recent earnings call, the company announced that it executed long-term supply agreements with three vendors and will spend about $3.9 billion over a two-year period,” he writes. “Based on our meetings in Asia (not with component suppliers) in conjunction with recent media reports, we believe Apple is securing displays for future products. Apple has started to emphasize display technology in recent months (iPhone 4, iMac 27″) and we expect this emphasis to continue with the second gen iPad, future iPhones and Macs, as well as a future Apple television.”

Concludes Munster: “Recent developments in Apple’s strategy, including the component deal we believe could secure up to 50″ LCD displays, bolster our confidence that the company remains serious about the connected living room.”

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Sirius XM: Analyst Downgrades On Howard Stern’s Lawsuit

Suddenly, Howard Stern has declared war on Sirius XM (SIRI). And that could be a big problem for the company and its holders.

As my colleague Jeff Bercovici noted yesterday, Stern has sued Sirius over bonuses he says he should have earned by attracting new subscribers to the satellite radio service. According to the AP, Stern claims the company told him he was not awarded the bonuses because the subscribers it acquired by merging with XM, don’t count toward his incentive targets. Stern counters that it was his presence that made the merger possible.

This morning, Wunderlich Securities analyst Matthew Harrigan cut his rating on SIRI shares to Hold from Buy, reducing his target on the shares to $1.65, from $2, asserting that “SIRI’s current stock market valuation likely cannot accommodate the uncertainty engendered by the suit – even if it ends up being meritless.”

As Harrigan notes, the complaint alleges that for each 2 million subs above internal targets, Stern is supposed to get an incentive payment – and that the XM customers acquired in the merger should count under the agreement. Sirius said it was surprised by the suit, which comes just after Stern signed a new deal that keeps his at the satellite radio provider through 2015.

Harrigan notes that the complaint in the case asserts that Stern was largely responsible for the survival of Sirius and its ability to merge with XM Radio.

This morning, SIRI is down 4 cents, or 2.1%, to $1.67.

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Dragon's Den firm agrees Tesco deal

A Dublin firm featured on last night's 'Dragon's Den' has agreed a €550,000 deal with Tesco, creating ten jobs.

Kooky Dough, which produces a range of cookie dough mixes for home baking has agreed to create two new Tesco own-brand lines for the supermarket's stores in the UK and Ireland.

Click here to watch Dragon's Den. (Only available on the island of Ireland)

The new lines are being stocked in UK and Ireland stores from this month.

All production will be done in Dublin for both UK and Ireland, creating ten new jobs.

Founded in September 2009 by Graham Clarke and Sophie Morris, Kooky Dough is in profit just two years after launching.

Kooky Dough began supplying Tesco Ireland in November last year with four of its branded doughs to 24 Tesco stores across Ireland.

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