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Apple Software Update Reveals Other Tech Winners and Losers
Monday was Apple's (AAPL) Worldwide Developers Conference event (a.k.a. WWDC), and that usually means we can see the latest and greatest in tech on display. In the end, the market wasn't all that impressed as far as AAPL stock was concerned, as there weren't any groundbreaking new products like an iPhone 5 or a TV, but the company has far-reaching implications across the sector and several other companies were affected by the changes in Apple's new iOS 6 software update, some good and some bad:
Nuance Communications (NUAN)
Apple continues to invest further into Siri voice control by adding more capability and ironing out any kinks, while also spreading it to other products such as iPads rather than just iPhones. For the maker of Siri, Nuance Communications, this means Apple is increasingly reliant on it and that its technology remains part of the overall vision of future Apple products. And not only that, but several automakers are getting in on it and will integrate with Siri; partners include GM, BMW, Mercedes, Land Rover, and Jaguar, Audi, Toyota, Chrysler, and Honda.
Be aware that NUAN has a strange relationship with Apple, in which Apple seemingly insisted that they strike an agreement where they take all the credit for Siri; you will rarely hear Nuance directly say that they are powering Siri. What NUAN will say is that they are not authorized to comment on specific devices or capabilities, but that Apple licenses its voice technology. Perhaps that is one reason the market may not be quite as bullish on NUAN shares as they could be; it's hard to say just how much credit Nuance deserves for Siri. Nevertheless, trading at a 11.2x forward P/E and 0.86x PEG you could say that NUAN is a very fair buy, especially when you consider that it's the spotlight of the Apple operating system (all of those iPhone commercials are about Siri) and spreading to other Apple devices as well as into cars. But keep in mind also that the trailing P/E is 142x, so NUAN still has a lot of growth to live up to.
Speaking of Siri, she will be implementing a wider range of services which in turn are integrated into iOS 6. Facebook (FB) will be part of the system, allowing Apple users to quickly post updates, access the services through other apps, and use voice control. FB shares needed a break for once, and this move by Apple gave FB investors a little bit of solace. That said, Facebook's main burden is probably its premium valuation (still 41x forward P/E) and even a nice deal with Apple may not justify that. Yet at 1.39x PEG, FB shares are at least somewhat close to alignment with long term bottom line growth projections. I'm still reluctant to be a buyer of this one.
While Facebook already has a lot on its plate besides Apple, OpenTable (OPEN) is one company that could get a big break from its newly unveiled integration with iOS. Once again the Apple platform and Siri are becoming more efficient at carrying out tasks and now that OPEN is integrated with the system, users can simply ask their iPhones, iPads, etc. for reservations at a certain restaurant and quickly get set up. OpenTable is already a popular service but by now being readily available to Apple users, you can see a whole new avenue of growth being opened up; those who have Apple products but haven't used OPEN are now much more likely to use the service, and those who already used it are apt to use it even more.
While OPEN stock was up almost 4% a day after the WWDC event (was slightly down on Monday despite initially spiking up), the reaction by the market seemed somewhat muted. The Street was disappointed by its Q1 report on May 1 which is likely still weighing on the stock. Furthermore, it maintains a hefty 23x P/E and 1.13x PEG; nevertheless there are no forward estimates that include iOS integration yet, and it could prove to be a very nice revenue lift although it's tough to get a solid projection on how much extra traffic it will drive.
Navigation Market (GRMN, TOM2.AS, AMAP)
Apple made a bold move to unseat Google Maps (GOOG) from its throne by creating its own mapping system. Suddenly Google maps may become obsolete on the millions of Apple devices. Not only does the new Maps app do all the addresses and visual mapping (in 3-D no less), it also incorporates turn-by-turn navigation and real time traffic updates. One stock that wasn't happy was Garmin (GRMN), the maker of nav systems who fell approximately 7% on Monday. There isn't much need to go out and buy a separate GPS unit if you've already got one on your phone. However, Apple didn't do all this alone. Dutch navigation company TomTom (TOM2.AS) added its technology to the app and as a result its shares were up 16% on the Dutch market. Yet perhaps the more intriguing stock is that of AutoNavi (AMAP), a Chinese navigation company that, according to Goldman, is likely the supplier for the Chinese version (based on channel checks and lack of TomTom licenses in China). This stock does trade on the Nasdaq and is even priced at a fair 11.1x forward P/E and 0.82x PEG. AMAP was up less than 5% on the rumor; look for this stock to make a nice move if it is in fact confirmed to be the Chinese supplier.
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