ML lowers FY05 estimates

Merill Lynch today reduced its 2006 earnings estimates for Apple, while offering an increased March quarter estimate compared with Apple's "conservative" guidance. The stock, which reacted negatively to the company's March outlook, is currently trading down more than $3.00 (3.7 percent). Merill analyst Richard Farmer, who said that the Intel-transition could affect the company's sales and maintained a "neutral"-weight rating on the stock (with a "high" volatility risk), while saying that higher-than-expected stock-option expenses would reduce the company's overall fiscal 2006 earnings. Normalizing the 'historical conservatism' by Apple, Merill estimates that the company will earn $0.50 per share on revenues of $4.8 billion, which is higher than management's outlook of $4.3 billion and $0.38.

"A major question coming out of the call is the degree to which the Intel transition will cause a stall in Mac sales as buyers hesitate in front of new models and/or native software ports. About 60 percent of units and revenue have been switched on a hardware basis, with the remainder yet to be transitioned. In the December quarter, CPU channel inventories started and ended below normal, explaining some but apparently not all the Mac unit slowdown."

Due to higher-than-anticipated expenses related to stock options, the firm has revised its model and reduced earnings outlook for fiscal 2006 year by $0.08 to $2.40, but kept its fiscal year 2007 estimates at $2.99 due to minor offsetting tweaks.

by MacNN Staff