AmTech analyst predicts delay for next-gen Ipod nano
San Francisco (CA) - In a report released this morning, Shaw Wu, an analyst at American Technology Research, cut his 12-month share price target for Apple Computer more than 25% - to $75 per share from $101. The single reason, Wu cited, is what he perceives to be a likely delay in Apple's introduction of new 4 GB and 8 GB models of the Ipod nano, on account of the company's transition from PortalPlayer as its provider of multimedia system-on-a-chip (SoC) processors to Samsung.
In this morning's report, Wu says it's likely that the higher-capacity Ipod nanos will be released in the fourth quarter of this year rather than the third, skipping over the critical back-to-school season when Ipods have traditionally seen sales peaks. Share prices for Apple immediately took a nosedive, falling by 3% in value by mid-afternoon to about $55.68, and refusing to level off.
Apple's move from PortalPlayer to Samsung was first revealed by the losing party itself, which lamented the loss of business during a conference call last April. Apple's 2005 selection of PortalPlayer as a multimedia processor supplier for Ipod was heralded as a contract that could put the small, San Jose-based ASIC manufacturer on the map. Without Apple as its key customer, PortalPlayer has had to drastically scale back its operations, announcing earlier this month the termination of 45 employees - 14% of its workforce - as it struggles to provide integrated multimedia chips to customers such as Acer and Asustek.
But industry observers believe Samsung was able to sway Apple's opinion by making it an offer it couldn't refuse. In Isuppli's teardown analysis of the nano, analyst Chris Crotty estimated it was paying as much as $77 per unit for integrated circuits - such as the PortalPlayer ASIC - alone, and $54 per nano for flash memory. 2 GB nano models currently retail for only around $200, and 4 GB models sell for around $250. Samsung was already Apple's principal flash supplier; a deal with Samsung could have lowered Apple's cost of goods significantly.
But, in the end, at what cost? The AmTech report this morning seems to indicate that Apple's factory process may have to retool significantly, for what may end up being a radically different nano on the inside. If Wu is correct, Apple could end up introducing an Ipod nano in the fourth quarter with at least a slightly different appearance, both outside and in. Historically, cosmetic changes to the Ipod have not been marginal, but often touted and marketed as world-changing events in themselves.
Shaw Wu was one of the first analysts to correctly predict the sales curve for the 2 GB Ipod nano, which he foresaw last November as much stronger than others had anticipated for the holiday season. In a statement last week for Forbes, Wu indicated he didn't believe the Ipod + Itunes combination had any likely challengers in the near future, among them clearly not Microsoft, which launched its URGE music service in conjunction with MTV Networks last month.