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Hot Stocks: Up 100%, Apple’s Shares May Still Have Room to Run

Bob Blandeburgo — Mon, 31 Aug 2009 19:00:07 +0000

Shares of Apple Inc. (Nasdaq: AAPL) have gained 100% since the start of the year, and with the likely release of an innovative “tablet” computer and the pending debut of its wildly popular iPhone in China both in the offing, the company’s stock could still find some room to run.

Shares in the Cupertino, Calif.-based company are at their highest level since August 2008, thanks to a successive string of upbeat earnings reports, a near-$30 billion cash reserve and recession-defying sales of its products.

The iPhone alone sold 5.2 million units in the second quarter, compared to 717,000 the year before, and its Macintosh computers, which still have a miniscule share compared to Windows-based PCs, are gaining momentum.

Several market research firms, including Deutsche Bank AG (NYSE: DB) and Barclays PLC (NYSE ADR: BCS), now have price targets for Apple stock that exceed $200 a share.

Apple’s shares closed Friday at $170.05, up 60 cents, or 0.35%, each. An advance to $200 would represent a gain of about 18% from current levels.

Sales of Apple’s now-ubiquitous iPod have slowed, but Apple executives anticipated that would be the case, as sales of its music-playing iPhone and iPod Touch grow. Both of those devices have access to thousands of applications sold in the App Store.

A tablet computer from Apple, which has been a hot news topic in the tech world since last spring, moved closer to reality last week. The Wall Street Journal reported that since returning from leave to undergo aliver transplant, Apple Co-Founder and Chief Executive Officer Steve Jobs has devoted almost all of his time to this specific device.

Pundits have already dubbed the gadget the “MacBook Tablet” or “iTablet,” and executives believe it will have positive implications for media going forward.

“It’s a portable entertainment device,” one entertainment executive toldThe Financial Times. “It’s going to be fabulous for watching movies.”

Recording executives say Apple plans on using the large screen for interactive booklets and liner notes that typically accompany compact discs. And book publishers could view the tablet as an alternative to Amazon.com Inc.’s (NASDAQ: AMZN) popular Kindle or Sony Corp.’s (NYSE ADR: SNE) Reader in the growing e-book market.

“It would be a color, flat-panel TV to the old-fashioned, black-and-white TV of the Kindle,” one book executive told the FT.

Hollywood and video game executives haven’t been briefed on the tablet, but both have shown optimism for it. A large selection of movies and games are already available for the iPod, iPod Touch and iPhone.

Apple is one of the most secretive companies in Silicon Valley. Its iPhone 3G S, which sold 1 million units in its first weekend, wasn’t announced until a few days before its release. By contrast, one of its primary competitors Palm Inc.’s (NASDAQ: PALM) Pre smartphone, released a few weeks before the 3G S in June, was first announced in January at the Consumer Electronics Show. Apple is aiming for a September or October launch of the tablet, The FT said.

While tablet computers are nothing new – they first debuted in the early part of this decade – they only comprise 1.4% of the global portable market, The Journal said. Toshiba Corp., Hewlett-Packard Co. (NYSE:HPQ) and Fujitsu Ltd. (OTC ADR: FJTSY) all attempted to sell tablets, but ultimately the devices proved to be too cost-prohibitive for consumers.

Despite the worst economic downturn since World War II, Apple is having no trouble convincing consumers to buy iPhones with pricey plans and more expensive Macs. Oppenheimer & Co. analyst Yair Reiner told the FT he expects Apple’s tablet to cost between $600 and $1,000, the range for many Windows-based laptops today.

The tablet is considered by analysts to be Apple’s answer to popularnetbooks, which are smaller laptop PCs designed for navigating the Internet. They usually cost between $200 and $400. CEO Jobs and others in the Apple brass ruled out developing a netbook in a conference call last fall.

“We don’t know how to make a $500 computer that’s not a piece of junk,” Jobs said at the time.

The iPhone Meets the Red Dragon

Apple, whose Mac computers have played second fiddle to personal computers since 1984, found mainstream success in the gadget realm starting in 2002 when it debuted the iPod. To date, roughly 300 million iPods have been sold since 2002. In 2007, Apple debuted the iPhone, which has sold more than 26 million units.

The iPhone will make its debut in mainland China in the fourth quarter with state-owned China Unicom Ltd. (NYSE ADR: CHU) having cut a deal to act as the exclusive carrier for three years. Like AT&T Inc. (NYSE: T) in the United States, Unicom will not share revenue with Apple. Instead, it will offer a subsidy to consumers to lower the price, which is expected have a similar $99 to $299 range with two-year service contracts.

Unicom, which is rolling out its third-generation network (3G), enabling wireless video and high-speed Internet navigation, has 141 million wireless users. Unicom will be competing with an estimated 1.5 million gray market iPhones, The Journal reports, citing research firm BDA China Ltd. Unicom, which just reported a 45% drop in profit, is counting on Apple’s iPhone to gain share over market leader China Mobile Ltd. (NYSE: CHL), which has over three times Unicom’s subscribers.

The overall Chinese mobile market, which has 687 million subscribers – more than twice the population of the United States – is highly competitive. Several phones running Google Inc.’s (Nasdaq: GOOG) Android operating system are due by year’s end, and China Telecom Ltd. (NYSE ADR: CHA) is in talks with BlackBerry maker Research in Motion Ltd. (Nasdaq: RIMM) and Palm to bring those phones to the world’s fastest-growing major market.

“It’s essential for Apple to be in China; it’s a huge market,” CIMB Securities Ltd. Deputy Head of Research Bertram Lai told Bloomberg News. The iPhone “is not just the premium product, it’s an aspirational product,” he said.

Source: Hot Stocks: Up 100%, Apple’s Shares May Still Have Room to Run

Investment News Briefs Friday, July 24, 2009

Money Morning Staff — Fri, 24 Jul 2009 14:00:21 +0000

Senate Nixes Quick Healthcare Vote; Falling PC Sales Hurt Microsoft’s Bottom Lines; Jobless Claims Rise; Deutsche Raises Apple Outlook on iPhone Sales; Economist: Housing Market Has Hit Bottom; AT&T Profit Falls 15%; McDonald’s Profit Down; 3M Beats Expectations

Senate Democratic leaders late yesterday (Thursday) abandoned plans for an overhaul of the nation’s $2.4 trillion healthcare system before Congress recesses in August – dealing U.S. President Barack Obama a major political blow. The decision was delivered by U.S. Senate Majority Leader Harry Reid, D-Nev., who said that “it’s better to have a product based on quality and thoughtfulness rather than try to jam something through.” The decision to reject President Obama’s ambitious timetable – he wanted a vote on the plan before Congress adjourned – had been anticipated for weeks. Sen. Reid’s comments mirrored those of Republicans, who feared the implications of a quick vote on such a politically charged issue.

Sagging worldwide PC and server sales resulted in a 17% revenue decline and a 29% drop in Microsoft Corp.’s (Nasdaq: MSFT)fourth quarter ended June 30. The company reported a net income of $3.05 billion, or 34 cents per share on revenue of $13.1 billion, compared to a net income of $4.29 billion, or 46 cents per share on revenue of $15.83 in the same quarter last year. For the year, the software giant posted a net income of $14.56 billion, or $1.63 a share on revenue of $58.43 billion, compared to a net income of $17.68 billion, or $1.90 per share on revenue of $60.42 billion in the same quarter last year.

Initial unemployment benefit claims in the United States grew by 30,000 to 554,000 for the week ended July 18, according to the Department of Labor. However, the less volatile four-week moving average shrank, falling by 19,000 to 566,000. “The numbers have come down but they still have a ways to go down before the bleeding of jobs is over,” said Andrew Gretzinger, a senior economist at MFC Global Investment Management in a Bloomberg News interview. “The labor market is still weak and is going to remain that for some time to come.”

Deutsche Bank AG (NYSE: DB) has raised its target for Apple Inc. (Nasdaq: AAPL) from $150 to $225 following its strong second quarter showing and impressive iPhone sales. Apple moved 5.2 million units of its lucrative iPhone, exceeding Deutsche’s projection of 5 million. Deutsche estimates iPhone margins to be roughly 60%. Another reason for Deutsche’s optimism regarding Apple is it expects the iPhone’s international reach to expand from 18 to 80 countries by the end of the September quarter, with a possible partnership with China Unicom Limited (NYSE ADR:CHU) as early as this fall, representing the iPhone’s debut in the emerging market.

Existing home sales in June rose by 3.6% to a 4.89 million annual rate from a revised 4.72 million in May, when the number rose by 2.4% according to the National Association of Realtors. “Housing may no longer be the weakest link,” said Joel Naroff, president and chief economist at Naroff Economic Advisors Inc. “Demand has clawed itself back to where it was a year ago, a very nice signal that the market has not only hit bottom but is making its way back.” In another sign the housing market may be on the upswing, rates on fixed-rate mortgages increased this week to 5.20%, up from 5.14% last week, Freddie Mac (NYSE: FRE) Vice President and Chief Economist Frank Nothaft said in a prepared statement.

Increasing landline cancellations and heavy iPhone subsidies contributed to a 15% drop in profit for AT&T Inc. (NYSE: T). The company reported a net income of $3.2 billion, or 54 cents a share on revenue of $30.73 billion for the quarter ended June 30. That compares to a net income of $3.8 billion, or 64 cents a share on revenue of $30.86 in the same quarter last year. The company did benefit from the new iPhone model released last month, activating 2.4 million accounts for the smartphone in the United States.

Rising customer traffic and operating income could not helpMcDonald’s Corp.’s (NYSE: MCD) profit, which fell 8.1% in the second quarter due to currency fluctuations, the company said. The fast-food chain posted a net income of $1.09 billion, or 98 cents a share on revenue of $5.65 billion for the quarter ended June 30. That compares to a net income of $1.19 billion, or $1.04 a share on revenue of $6.08 billion in the same period last year.

3M Co. (NYSE: MMM) suffered an 18% drop in its profit, but beat expectations due to stronger demand for electronic healthcare products in its second quarter ended June 30. The conglomerate posted a profit of $783 million, or $1.12 a share on revenue of $5.7 billion, compared to a net income of $945 million, or $1.33 a share on revenue of $6.7 billion in the same quarter last year.

Source: Investment News Briefs Friday, July 24, 2009

Phase One of China’s Telecom Overhaul: China Unicom, China Telecom Corp. and China Netcom Swap Assets

Mike Caggeso — Mon, 02 Jun 2008 20:05:34 +0000

Wasting no time with China’s government-executed telecom restructuring, telecommunications giant China Unicom Ltd. (ADR: CHU) agreed to sell the smaller of its two wireless networks to fixed-line titan China Telecom Corp. Ltd. (ADR: CHA) for nearly $16 billion.

Unicom will also pay $24 billion to take over fixed-line operator China Netcom Group Corp. Ltd. (ADR: CN) by issuing more than 10 billion new shares, Reuters reported.

These asset swaps are the first since the government announced a little over a week ago that the country would undergo a high-profile industry overhaul that will meld China’s six main wireless providers into just three – China Telecom, China Netcom and China Mobile Ltd. (ADR: CHL).

The reason: China needs to catch up with the rest of the world in adopting third-generation, or 3G, wireless services that quicken increasingly popular Internet services such as music and video downloading.

A day before the deal’s announcement, China’s state-controlled Xinhua news agency reported that China Mobile – the world’s fourth-largest company and largest mobile phone company – said it would take over China Tietong Telecommunications Corp. for an undisclosed amount.

“The government is the owner of all the players and the umpire and determines the playing field,” Duncan Clark of Beijing-based consultant group BDA told Reuters. “This is the first step toward 3G, but does it mean 3G will come sooner? That remains to be seen.”

Industry analysts expect each of the giant telecom companies to employ different versions of 3G technologies, The Wall Street Journal reported. One of those will include China’s own 3G standard, called TD-SCDMA.

But other 3G providers such as Paris-based Alcatel-Lucent (ADR: ALU), China’s Huawei Technologies Co. and Ericsson Telefon AB LM are hoping for a shot at what could be windfall profits via contracts with China’s new telecom kings.

“This restructuring is key to a 3G rollout, and there will be lots of opportunities for domestic and foreign equipment providers,” Ian McGuinn, managing director for JL McGregor & Co., a China-focused consulting company, told The Wall Street Journal.

Source: Phase One of China’s Telecom Overhaul: China Unicom, China Telecom

In Major Shakeup, China’s Govt. Melds Six Largest Telecoms into Three

Mike Caggeso — Wed, 28 May 2008 12:46:21 +0000

There are three new kings in China’s $100 billion-plus telecom kingdom: China Telecom Corp. Ltd. (ADR: CHA), China Network Communications Group Corp. Ltd. (ADR: CN) and China Mobile Ltd. (ADR: CHL).

Not surprisingly, all are state controlled.

But now that the first two have more assets, the up-to-now dominant China Mobile faces increased competition and a more-level playing field.

The government of China announced this major shakeup in the country’s burgeoning telecommunication industry over the weekend. It’s a massive restructuring that’ll fold the country’s top six telecom companies into three, and possibly open the way to windfall profits for wireless-equipment providers.

“Everyone has been waiting for it for over three years and now it is here,” Kelvin Ho, a Hong Kong-based analyst at Nomura International PLC, told Bloomberg News of the reorganization plan. “Creating three full-service phone companies offering both fixed and mobile services will help the fixed-line phone companies.”

Under the plan, fixed-line provider China Telecom will acquire one of China United Telecommunications Corp.’s two wireless networks and also China Satellite Communications Corp., The Wall Street Journal reported. China United is the parent company of China Unicom Ltd. (ADR: CHU).

Then, China United’s remaining wireless network will merge with China Network Communications Group, parent company of China Netcom Group Corp. Ltd. (ADR: CN).

Financial terms weren’t released.

A day before the plan’s announcement, China’s state-controlled Xinhua news agency reported that China Mobile Ltd. – the world’s fourth-largest company and largest mobile phone company – will take over China Tietong Telecommunications Corp. for an undisclosed amount.

Many investors hung up on China Mobile, which saw its shares take an 8.2% shellacking on Monday, the biggest decline in two months, following the announcement of the government plan.

Three Companies Providing “3G”

Though the arrangements of this entanglement are complicated – and without a timeline for completion – the impetus is simple: China needs to catch up with the rest of the world in adopting third-generation, or 3G, wireless services that quicken increasingly popular Internet uses such as music and video downloading.

The restructuring will also combine many phone and Internet services into one bill for many households.

And 3G providers such as Paris-based Alcatel-Lucent (ADR: ALU), China’s Huawei Technologies Co. and Ericsson Telefon AB LM are lining up for contracts.

In fact, the annual salary of Alcatel-Lucent’s Chief Executive Patricia Russo may be largely determined by how well the company capitalizes on this and other opportunities, Reuters reported. Alcatel-Lucent’s New York shares gained 4.1% yesterday (Tuesday), the first day of trading in the U.S. market since the weekend announcement in China.

Industry analysts expect each of the giant telecom companies to employ different versions of 3G technologies, The Wall Street Journal reported. One of those will include China’s own 3G standard, called TD-SCDMA.

Pressure of the Mobile Phone Industry

The bruising competition in the global telecom market only adds to the companies’ eagerness to expand China’s mobile-phone market, which at more than 465 million users is larger than the combined populations of the United States, Japan…and, for good measure, the 48-person population of the Pitcairn Islands.

In China, China Mobile controls about 68% of the domestic mobile-phone market, while China Unicom has most of the rest. China Mobile has nearly 400 million customers total, a figure that combines its Internet, mobile-phone and fixed-line services.

Before this deal, China Mobile was leading the worldwide shift away from fixed-line phone service and into mobile multimedia. It had been steadily stealing subscribers away from China’s fixed-line titan China Telecom. And its penetration into new and rural markets – with its mobile newspapers service in tow – is tapping new customers that neither telecom company previously had been able to reach.

Now, customers have half the number of companies to choose from, but the three left standing are leaner. The mobile-phone market is China Mobile’s bread and butter, and these measures could likely induce potential mobile-phone customers to feel satisfied with combined Internet and fixed-line services.

Source: In Major Shakeup, China’s Govt. Melds Six Largest Telecoms into Three