Halo effect to change balance of desktop sales

Following the release of new Power Mac models, investment firm Merrill Lynch remains optimistic about Apple's future, as the release of Mac OS X 10.4 "Tiger" nears. Power Mac G5 updates are "in time for Tiger," with shipping times of 1-2 business days. The new desktops give "more bang for the buck" and come "standard with dual-display support, which is key for the professional market." Merrill Lynch also points out that "new Apple users will opt for lower cost machines," and "iMacs and eMacs due for a refresh" to "take advantage of the Tiger OS hype" in the tech community. "There is now solid evidence of the halo effect, so the company wants to strike while the iron is hot."

In 2004, Power Macs accounted for 22 percent of Mac desktop sales, but Merrill Lynch expects this number to decline as the iPod's "halo effect" drives sales of iMacs and Mac minis at a faster rate than Power Macs.

Supporting its Halo effect analysis, Merrill analyst Steven Milunovich said that Apple grabbed 3.6 percent of total U.S. PC shipments in the March quarter versus 2.6 percent last year. Earlier this month, Gartner said that strong shipments of iMacs and PowerBooks helped Apple grow its overall U.S. shipments by 45 percent--more than any other PC maker-to 571,000 during the quarter. Gartner also said that Apple's share was up almost 16 percent from the fourth quarter of 2004, which was suprising because the surge of holiday quarter sales usually drops off in the first quarter.

Milunovich reiterated its "Buy" rating with a price objective of $51 per share. "The stock broke its 50-day moving average, which caused short-term underperformance. But in a growth sector lacking growth, we think investors should be attracted to Apple. Valuation is attractive, in our view, with the stock at 24X our F2006 EPS estimate of $1.55 (not taking into account cash, which offsets coming option expense)."

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