Firm on Apple software

UBS Investment Research said today it believes Apple's software business may become the company's next big "multiplier" as revenues approach $1 billion in 2005. Echoing research firm , UBS said Apple should benefit from two full months of Tiger sales in its fiscal June quarter. It also expects key "Tiger" features such as Spotlight, Dashboard, and iChat to fuel Mac growth in the near term.

"We believe the next big 'multiplier' business to get attention will be Apple’s software, which posted revenue of $213 million in 1Q05 and we estimate will approach $1 billion in total revenue this fiscal year ... We believe the math behind Apple’s software potential is attractive, making estimates conservative." UBS estimates the annual revenue run rate of Apple's iPod peripherals to be at $400 million, iTunes at $500 million, Apple Retail at $2.5 billion and iPod hardware topping $4 billion.

"With delays at Microsoft for Longhorn and battles with viruses, we believe the time is right for Apple to regain share on the back of Tiger. Aditioanlly, "over 10 million Apple users have still not upgraded to systems that run OS X, and we believe that Tiger may push many over the edge."

"One could argue that with its new stores, an enhanced online store, and broadened distribution, this could be Apple’s year to see its software sales surge," Reitzes said. The firm believes Apple may see up to 25% of its existing 14 million Mac OS X users upgrade to Tiger over the next several quarters, compared to 10-12% for a typical upgrade. "As a result, we believe our software revenue estimates of $990 million for FY05 and $1.18 billion for FY06 are conservative."

UBS reiterated a "Buy2" rating on Apple with a price target of $50 per share

by MacNN Staff