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Apple (NASDAQ:AAPL): Expect massive iPhone Q4/F08 shipments - RBC
Couple of firms are out with positive comments on Apple (NASDAQ:AAPL):
- RBC Capital says they expect massive iPhone Q4/F08 shipments of 5.1M, up 356% Y/Y, 629% Q/Q (including est. 1.5M unit sell in to 22 countries) and 6.5M Q1/F09, up 181% Y/Y (sellthrough, channel fill to 70 countries). Q3 iPhone expected 700k (no revenue) and Q4/Q1 iPhone rev/EPS expected at $700M/$0.10 EPS and $1.1B/$0.15 (24 mo acctng).
Rising Investor Sentiment Expected. Along with rising street iPhone estimates, the firm expects Q4/Q1 iPhone results to boost investor sentiment over rising visibility to Apple's global iPhone dominance and market share. They continue to forecast 14M iPhones CY08 rising to 24M CY09, with iPhone's TAM (Total Addressable Market) handset share expected to rise from 0.3% CY07 to 1.7% CY09.
Near-term valuation pressures are expected to dissipate, as investors recalibrate around global iPhone market share gains and EPS upside. Reits Outperform and $220 tgt.
- Morgan Stanley notes that based on their recent trip to Taiwan, they believe order cuts are now complete in the notebook market whereas downside risk remains for handsets and other consumer products. Firm expects to see a solid seasonal bump in notebook shipments as battery cell supply improves and Montevina availability stimulates new product introductions this summer. They believe AAPL (notebooks 25% of profits), DELL (20% ofprofits) and STX (15% of profits) are best positioned to capture this trend in 2H08.
Hilliard Lyons IDCC Research Report Published @ 3:54pm EST on Friday (6/13)
Although the report is 10 pages, I posted pages 1-3 (summary investment thesis) below.
=====================
InterDigital, Inc.
Tom Carpenter, CFA
Senior Technology Analyst
Rating: Buy
June 13, 2008
Important Legal Issues Could Soon become Clear. Reiterate Buy.
•InterDigital has three important legal issues that could significantly impact its share price over the next two months. Two of the maters relate to Samsung 2G and 3G, while a third ruling concerns a possible 3G license with industry heavyweight Nokia. If InterDigital is successful in these three issues, it could collect its $180 million to $200 million 2G arbitration win from Samsung, and more important, pave the way for 3G licenses with mobile phone industry market share leaders Nokia and Samsung, who combined, represent approximately 55% market share.
•The most important legal issue, in our view, is InterDigital appealing a ruling that allows Nokia to go to arbitration over a 3G patent dispute. On August 8, 2007, InterDigital filed a 3G patent infringement complaint at the International Trade Commission (ITC) alleging that Nokia infringes four of InterDigital’s patents. Nokia claims its has special rights to IDCC’s patents due to a 2G and 3G agreement Nokia and InterDigital signed in February 1999 (expired in 2006) whereby the companies jointly developed 3G Time Division Duplexing. InterDigital disagrees. An administrative law judge at the ITC, who specializes in patent disputes, denied Nokia’s request for arbitration. Nokia found a sympathetic forum, and federal Judge Deborah Batts ruled that Nokia could take InterDigital to arbitration, and put InterDigital’s 3G complaint at the ITC on hold.
•In our view, there are three points of concern with Judge Batts’ ruling: 1) It appears to violate collateral estoppel, which prohibits relitigating an issue once a court had decided an issue as to fact or law, and 2) Whether a federal judge has jurisdiction over the ITC. Usually, the Federal Circuit Court of Appeals is the federal venue for ITC matters, and 3) Whether she overstepped her bounds by injuncting an ITC case. The Second Circuit Court of Appeals is hearing IDCC’s appeal on June 17, 2008. Based on three questions the court asked Nokia to answer on June 13, 2008, it appears the court has reservations about Judge Batts’ ruling. See Exhibit III for the questions. We believe the Second Circuit will rule in InterDigital’s favor by the end of July 2008. If the Second Circuit rules in InterDigital’s favor, InterDigital’s 3G complaint against Nokia at the ITC will restart in several months. If the Second Circuit upholds Judge Batts’ ruling, then Nokia can likely delay an ITC restart for at least one year.
•The International Trade Commission has scheduled an evidentiary hearing for InterDigital’s 3G patent infringement complaint against Samsung July 8-14, 2008. Unless there is a speedy ruling by the Second Circuit in InterDigital’s favor in its appeal of Judge Batts’ ruling that could possibly allow the Nokia and Samsung cases to be re-consolidated, we expect the InterDigital/Samsung evidentiary hearing to proceed as scheduled. We believe the evidentiary hearing will be insightful, as attendees likely will be able to tell which of the five patents, if any, the administrative law judge’s staff believes Samsung’s 3G handsets infringe upon. The administrative law judge is scheduled to rule November 25, 2008 whether Samsung infringes on any of InterDigital’s patents in the case. If infringement is found, the ruling will also contain a remedy, which could include an import ban into the U.S. on any Samsung 3G phones that infringe on IDCC’s patents. A final ruling by the ITC is scheduled for March 25, 2009.
•We believe the International Court of Arbitration could (finally) rule the first week of July on InterDigital’s and Samsung’s 2G arbitration. The International Court of Arbitration ruled in September 2006 that Samsung owes InterDigital approximately $180 million to $200 million (including interest) for 2G sales covering 2002-2006. Samsung appealed a U.S. federal judge’s confirmation of the award, and posted a $167 million bond for the years 2002-2005, with 2006’s amount yet to be decided. Samsung also filed something similar to an appeal at the International Court of Arbitration, and we believe a ruling on Samsung’s appeal is imminent. Hopefully, a ruling by the International Court of Arbitration will put the matter to rest, and InterDigital and Samsung can use the 2G money as a bargaining chip in their 3G licensing negotiations. Whether or not the International Court of Arbitration confirms the original ruling or gives Samsung a discount on what it owes IDCC for 2G, we believe Samsung will owe InterDigital well north of $100,000,000.
•InterDigital released an 8-K on March 24, 2008 indicating that it and Nokia were in settlement talks and had made substantial progress. Unfortunately, no 3G agreement between the parties has been announced, and we believe Judge Batts’ ruling gave Nokia additional hope that it might be able to stall/delay paying InterDigital for 3G for another year or two, thus sidetracking negotiations. A ruling in InterDigital’s favor by the Second Circuit Court of Appeals could help jump start 3G licensing talks, as Nokia would be forced back to the ITC, where a loss to InterDigital could mean a 3G import ban in the U.S., a market where Nokia’s market share is over 30 percentage points below its global share. Nokia is introducing up to twelve phones in the U.S. in 2008, and would like to at least double its U.S. market share.
•IDCC’s Slim Chip and other products appear to be meeting acceptance in the marketplace. In February, InterDigital announced it licensed its 3G modem technology to a leading Asian fables semiconductor company. The unnamed company will incorporate IDCC’s modem intellectual property, baseband design, and protocol stack software into the company’s dual mode chips. We anticipate revenue from this win in 2H08. We expect additional modem and chip licenses in 2008 that could enable InterDigital to grow its product revenue significantly in 2009. In 2009, we believe InterDigital will launch the next generation of its chip family, and in addition to its current modem and data card capabilities, the 2009 chip will be geared toward smart phones. If Slim Chip gains new customers, and Infineon ships its 3G chips in bulk to Samsung, Apple, and others, we estimate IDCC’s product revenue could approach $15 million to $20 million in 2009.
•This is the year for InterDigital’s management to deliver 3G licensing wins with major manufacturers. After IDCC’s groundbreaking five-year combined 2G and 3G deal with LG Electronics in January 2006, management repeatedly spoke of licensing momentum on conference calls during the remainder of 2006. We believe the firm has had serious negotiations with Nokia, Samsung, and Sony Ericsson since the LG Electronics agreement, but has been unable to agree on a licensing rate. This led InterDigital to file a 3G patent infringement complaint against Samsung in March 2007; and one against Nokia in August 2007. At Nokia’s request, the cases were consolidated. From legal filings, it appears Nokia and Samsung are trying the kitchen sink defense. On one hand, they claim they don’t infringe on InterDigital’s patent, then in another argument, claim they are willing to license, but that IDCC hasn’t been willing to license under fair, reasonable, and not discriminatory terms (FRAND). Our legal sources indicate Nokia’s and Samsung’s FRAND argument is an attempt to avoid a potential U.S. import ban if they are found to infringe on InterDigital’s patents. We believe InterDigital is seeking $0.50 to $1.00 per handset from Nokia and Samsung (less than 1% of the selling price of a handset), while Nokia is likely offering much less than that. We estimate Qualcomm’s current average royalty rate to be approximately $8 per handset. It is ironic considering that in a patent infringement litigation Nokia filed against Vitelcom in 2004, Nokia’s expert Erik Stasik noted that, “Bundled royalty rates for GSM essential patents owned by a single patent holder are between 2.5% and 5% assessed on the net sales price of the infringing products.”
•InterDigital’s cash position is a strong $5.07 per share, and could rise significantly by the end of 2008 if it collects its 2G award from Samsung and signs 3G licensing agreements with major mobile phone manufacturers. The firm had $240 million of cash on its balance sheet at the end of 1Q08, and if IDCC collects money owed from Samsung, the firm could have $400 million to $500 million in cash (or almost one-half of its market capitalization), depending on how much of the approximately $50 million remaining (through May 4, 2008) share repurchase authority it uses. We would like to see the firm expand it share repurchase plan by another $50 million to $100 million by the end of the summer.
•InterDigital’s strong cash and patent position could make it a takeout candidate. If the firm finalizes 3G license agreements with industry heavyweights, the agreements could bring in over $1 billion dollars over the next five years - See Exhibits I and II. Add this to InterDigital’s cash position once it collects its 2G award from Samsung, and InterDigital could be attractive to private equity firms (even in today’s markets). If the ITC finds that Samsung and Nokia infringed on InterDigital’s patents, then this, coupled with the UK judge’s ruling about IDCC’s essential patent, could make InterDigital enticing to someone like Qualcomm, which may want to bolster its already strong patent position as it battles Nokia over 3G royalty rates. Perhaps if Qualcomm purchases InterDigital, and the top cell phone manufacturers don’t have to pay InterDigital approximately $1 per phone, the manufacturers might be more inclined to accept QCOM’s standard royalty rate.
•We believe IDCC can sign licensing agreements with two of the remaining top four manufacturers in the next year. A 3G agreement with industry heavyweights Nokia and Samsung could also occur in late 2008 or 1H09. We estimate IDCC’s earnings per share can range from $2.00 to $3.50 when it signs the leading manufacturers. To derive our price target, we are choosing the low end of that range, $2.00 to be conservative. Applying an 18x multiple to that yields $36. We believe our target multiple is reasonable given the 22x multiple for the Nasdaq Composite for 2008 and competitor Qualcomm’s 23x multiple for 2008. Given uncertainty of the timing of 3G licensees with the remaining major manufacturers, we believe it is prudent that IDCC receive a discount in our target multiple valuation. In our view, investors with an above average risk tolerance looking for a pure play investment that leverages the growth of the 3G wireless market should consider InterDigital.
Barron's Article, This Weekend (6/7)
I am very fair and balanced. I'll share positive and negative articles. Although I am an IDCC bull, this article may create some selling pressure on Monday. Your thoughts? Perhaps this is old news: IFX reduced its forecast on 5/29 and analysts suspected it was Apple-related. We've gone straight up ($/share) since then, which support the theory that this is old news.....
Thoughts?
Delay to Cut 3G iPhone Sales
By MARK VEVERKA
The next iPhone
PLUGGED IN
http://online.barrons.com/article_print/SB121279308452953373.html?mod=9_0031_b_this_weeks_magazine_tech_week
PSST. DID YOU HEAR THE WORST-KEPT SECRET in silicon Valley? Apple Chief Executive Steve Jobs is expected to unveil the next-generation iPhone this week at the company's Worldwide Developer Conference in San Francisco.
The Apple "fanboys" -- enthusiasts who clog the Internet with unbridled praise for everything the company says and does -- have been chattering for months about this day, as if it were the Second Coming. In fact, anticipation of the third-generation, or 3G, iPhone has driven up Apple shares (ticker: AAPL), which have been trading in the high 180s, nearly 60% since February.
Having 3G capability would allow Apple's innovative smartphone to do many of the nifty things it is designed to do because it will take advantage of the upgraded networks of its carriers, such as AT&T (T) in the U.S. Third-generation networks have more bandwidth, and are faster and more robust. I'm sure the phone will be hugely popular, especially as software developers start to roll out enticing applications, such as games and location-driven services.
But what the fanboys won't tell you -- as won't many unabashed boosters in the press -- is that the iPhone's production rollout is behind schedule. That's what a number of tech hedge-fund managers are saying, attributing their information to investigative research outfits that talk with engineers and supply-chain managers at the contract manufacturer and component suppliers in Asia. These sources say that Apple has slashed its internal expectations for iPhone unit sales by up to 16%. They report that Apple had planned to ship 12 million 3G units by the end of the third quarter, but now expects to ship about 10 million to 10.5 million by the fourth quarter, owing to production delays.
IN A RESPONSE TYPICAL AMID SUCH rumors, people have been stating that Apple has shipped hundreds of thousands of 3G iPhones, which are supposedly sitting on warehouse shelves. But hedge-fund sources say that Foxconn International Holdings (2038.Hong Kong), the contract manufacturer that assembles the devices, has shipped only several thousand. The blogosphere and Wall Street have been running with the widely disseminated rumor that production began in May. Apple hasn't publicly commented on this. (It declined to discuss the reports with Barron's.)
Foxconn and component makers won't crank up mass production until the middle of this month, although researchers say that they had been pressured by Apple to start doing so a few weeks ago. The reasons for the delays are unclear, but the most logical presumption is that Apple was too optimistic about how fast supplier Infineon Technologies (IFX) would introduce a new chipset for the phone. Infineon reduced its forecast for shipments this year, and analysts suspect that it's Apple-related.
For the record, Apple has said only that it expects to ship 10 million phone units -- period -- in 2008. It will be interesting to hear how many of the highly coveted 3G phones will be available and how soon. I'm sure Jobs will have an answer for everything. He usually does.
Nice Summary From An IDCC Institutional Investor
http://dcmstocks.com/blog/2008/06/will-interdigital-and-infineon-make-the-apple-3g-iphone-3g/
3G iPhone firmware leaked
relis, magillagorilla, JimLur, mschere, Data_Rox, I'd love to hear your astute views....
3G iPhone firmware leaked: tri-band HSDPA and GPS are go
by Ryan Block, posted Jun 6th 2008 at 9:14PM
http://www.engadget.com/2008/06/06/iphone-3g-iphone-firmware-leaked-tri-band-hsdpa-and-gps-are-go/
It's easy to take for granted the 3G iPhone's launch at this point. After all, Steve said it was "coming later this year," as did a number of prominent mobile executives. And then there's been the barrage of carrier announcements, many in international markets that use UMTS and have zero support for the iPhone as we know it today. But the fact of the matter is we've had very little to go on by way of material evidence -- until now.
We have it from a reliable source that a version of the 3G iPhone's firmware has been released -- possibly for carrier partners currently field-testing the device -- and has since been dissected. While nothing is ever guaranteed, in combing through the raw data, we think we got more than enough information on the low-level hardware and drivers that run the device to make some informed conclusions about what we can expect: quad-band GSM support (as we currently have), A-GPS (as we'd already gotten from another source), and tri-band UMTS / HSDPA -- which would make the new iPhone(s) 3G-capable in just about every market in the world. Hardware details after the break. We're through the looking-glass, people!
All the dirty details:
*Infineon PMB6952 / S-GOLD3 six-band UMTS / HSDPA transceiver (as we'd heard)
*Murata LMRX3JCA-479 tri-band amplifier (we're assuming for the 3G)
*Sony SP9T antenna switch for GSM / UMTS dual mode
*ARM 1176JZF-S - Main CPU (same as in 1st gen iPhone)
*Skyworks 77427 chip - UMTS / HSDPA tx 1900MHz, rx 2100MHz
*Skyworks 77414 chip - UMTS / HSDPA 1900MHz
*Skyworks 77413 chip - UMTS / HSDPA 850MHz
*Internal build model number: n82ap (1st gen iPhone was model m68ap)
*UMTS Power Saving option - on or off
*Hooks for Global Locate Library (GLL), software that handles A-GPS related commands for the host processor
Nokia to use IDCC products in future?
http://wirelessanalyst.blogspot.com/2008/06/nokia-to-use-idcc-products-in-future.html
Volume May Exceed Expectations...
A thinner iPhone with 3G, double the memory and better battery life for $199? Sold.
http://venturebeat.com/2008/06/02/a-thinner-iphone-with-3g-double-the-memory-better-battery-life-for-199-sold/
Second to the last sentence says it all: "If Apple launches a 3G iPhone that is thinner, with double the memory and has a better battery life — while being available for $199, the pace at which it sells could be frightening."
i am epiq_maestro on the yahoo message board. i post everything i know about EPIQ there.
Tobin's article from today:
http://articles.moneycentral.msn.com/Investing/StrategyLab/Rnd16/P2/ChangeWaveJournal20080117.aspx?page=1
Notice recommendation #7 on page 2 of the article: “Shift to stocks that benefit from recessions – for example bankruptcy services”.
Now go check out the business description for EPIQ Systems (NASDAQ: EPIQ). There's your play to follow Tobin's lead....
The phenomenon that occurs near the end of every quarter whereby fund managers window dress their portfolios will certainly apply to Network Engines as of 6.30.2003. This insidious practice entails the managers purchasing shares of companies with the best quarterly returns, which allow them to appear as top-notch stock pickers, even though they are widely considered “sheep bag holders”.
So now you’ll know where the relative strength will be coming from as we get closer to window-dressing day…………..
Kevin
My Network Engines Post on the Yahoo Message Board:
Part 1-
http://messages.yahoo.com/bbs?.mm=FN&action=m&board=1600905307&tid=neng&sid=16009053...
Part 2-
http://messages.yahoo.com/bbs?.mm=FN&action=m&board=1600905307&tid=neng&sid=16009053...
Part 3-
http://messages.yahoo.com/bbs?.mm=FN&action=m&board=1600905307&tid=neng&sid=16009053...
Part 4-
http://messages.yahoo.com/bbs?.mm=FN&action=m&board=1600905307&tid=neng&sid=16009053...
Great BlueSky. I am doing all of this in an email to you, with attachments (work in process). I will definitely have it done by tomorrow morning.
*P.S. You have to think that the analyst community will do a better job of tracking units shipped, etc. of the Centera as it becomes a greater piece of EMC's total revenues? Of the analysts that currently attempt to track Centera's revenues, its funny to see the variety of estimates they have on a quarter over quarter basis (I have this in one of my sheets-GS, AG Edwards, Berstein, Merrill, and Lehman Brothers).
More to come,
Kevin
BlueSky, I am attempting to work backward from the EMC press releases to get a feel for the economics of a typical Centera transaction. Basically, if EMC states "we sold over 3 petabytes of the Centera during this past quarter," I can take that information and work backwards to get a rough estimate of Centera's contribution to Network Engines' quarter. Do you mind if I send you a spreadsheet with the work I have done thus far? To soothe your uneasiness with dealing with a complete stranger, my name is Kevin Flick, Dallas, TX, kevin@flickco.com. Again, I actively post on the Yahoo boards ("kjf_flickco"). My intentions are genuine, not meant to be coercive, just wanting to further my handle on the story.
Thank you in advance,
Kevin
Wow BlueSky, I am super impressed with your work! Let me gather my thoughts and I will post tomorrow morning. You sound like you really have your sh!t together.
I am a regular poster on Yahoo! (kjf_flickco), which you are exactly right, there are a bunch of lunatics on that board.
Thanks again!
Kevin
Blueskywaves, where did you get this super helpful breakout of revenues? If you choose not to respond publicly,you can email me @ kevin@flickco.com. Thank you!
NENG SALES
2Q02-2Q03
TidalWire Centera Others Total
2Q02 - $ 2.3M $ 0.7M $ 3.0M
3Q02 - 3.4M 0.7M 4.1M
4Q02 - 4.8M 0.5M 5.3M
1Q03 - 4.9M 1.1M 6.0M
2Q03 $10.2M 8.1M 1.1M 19.2M
3Q03(E) $10.5M 10.4M 1.1M $22.0M
3Q03(E) $11.5M 11.4M 1.1M $24.0M