UBS on AAPL, future

UBS Investment Research today previewed Apple's second quarter earnings while speculating about innovations it expects from Apple in the coming years. For the recently ended fiscal quarter, UBS estimates that Apple will earn 23 cents per share on revenue growth of 67 percent year-over-year to $3.2 billion. The firm said that these estimates are conservative, and Apple will likely post slightly higher figures when it issues its final report on April 13th. UBS also said it estimates that each point of PC market share gained by Apple will result in about $2 billion in incremental revenue. UBS maintained its "Buy" rating on Apple with a price objective of $50.

"Our checks indicate that perhaps the biggest issue during fiscal 2Q05 and into this month is sales of new PowerBooks are being adversely impacted by problematic trackpads."



Beyond Music



UBS said new products from Apple could bring more photo and video, expanding iTunes and the iPod beyond music. "As evidenced by the iPod Photo, we believe iTunes can be expanded not only to manage digital photo libraries, but also video or movie downloads with even a video service emulating the iTunes Music Store."



UBS said Apple's future product developments and innovations could possibly include: more innovation around photo-capable iPods; multimedia iPods; a digital media hub; and even an iTunes-like movie/video download service.



The analysts say iPod photo-like features will likely become standard in hard disk-based iPods as color screen prices fall and battery technologies improve. The report said digital camera owners may begin to see the iPod photo as a compelling accessory that can expand the capacity of their camera, in addition to aiding in the creation of portable digital photo albums. UBS predicts Apple will update or expand its iPod photo product line prior to the holiday shopping season, lowering price points.



Despite comments from Steve Jobs to the contrary, the firm said it wouldn’t be surprised if Apple eventually launched some form of a multimedia iPod. "Reports suggest that Apple is likely watching the reception for the video features in Sony’s PSP very carefully ... we believe that real success for a video/movie capable iPod may need to come in conjunction with a new download service from Apple, that can easily put content into the device."



Saying it believes the movie industry is in a similar position to the music industry of five years ago, UBS thinks there is "significant opportunity" for Apple to become a leader in movie downloads. "We believe Apple may be able to build upon its experience with iTunes to create a comparable service for motion content ... We believe that the iTunes model could work well with movies as download times improve," the analysts said. "Also, Steve Jobs may be one of the few industry executives that may be able to pull off an agreement that would be palatable to both the movie and consumer electronics industry."



Expect a Media Hub



UBS also believes it's increasingly likely Apple will focus on becoming the center of the "digital home," saying by the end of 2005 the company could introduce a media hub that acts as a server and storage unit for music, movies, photos and other types of home entertainment.



Eventual Boom of Hard-Drive Equipped Phones?



Touching on the controversy and delays surrounding the Apple-Motorola iTunes phone, UBS said it believes the cell phone market represents an opportunity for Apple in terms of driving additional songs through iTunes. However, the firm believes the company must also continue to innovate with iPod capabilities in order to fend against an eventual boom of hard-drive equipped cell phones that will be capable of playing music files and possibly make the iPod seem obsolete.

by MacNN Staff