updated 02:05 pm EST, Mon January 3, 2005
iPod of the living room?
Merill Lynch analyst Steven Milunovich says that circulating reports of a sub-$500 "headless" iMac would "the second step for Apple moving into the digital living room," following the release of its AirPort Express in July of 2004. In a report to clients, the analyst said that a sub-$500 iMac would help increase the iPod halo effect and move users to the Mac platform: "As we advocated in our June 22 report Apple Computer: New iMac Coming? we like the idea of a headless iMac. Why require a PC owner to buy a new monitor to get a Mac? Selling just the system unit would cut significantly the cost to switch." Milunovich noted that the iMac could cannibalize the eMac product line, but that the impact would be "modest" because of the targeted education demographic for the eMac.
The note said that the new "headless" iMac could become the entertainment server for the living the room, which was referenced in a Merill report late last year. Milunovich also said that the target market would be those iPod purchasers wanting a second easy-to-use PC with their iPod, noting that Windows users must upgrade to XP anyway to connect to an iPod. Milunovich also said that Apple must continue to build a strong digital consumer franchise based on more than just the iPod; he maintaind a "Buy" rating on AAPL with a target price of $78 per share based on a 2.2X EV/Sales ratio, which is an 18% premium to Dell and Lexmark. Merill also expects that Apple's earnings growth to be faster than Dell's.