Mac sales to offset slow iPods in FYQ4

Research firm Merill Lynch today lowered its estimate for Apple's iPod sales for the September quarter while increasing its estimation of Macs sold, joining two other industry analyst firms which modified their views on Apple yesterday. "We are tweaking our Apple model to reflect slightly higher Mac estimates and lower iPod units (offset by higher ASP mix) for the September quarter," wrote Merill Lynch analyst Richard Farmer in a research note obtained by MacNN. "Our overall fiscal fourth quarter of 2006 (September) revenue estimate goes up slightly from $4.57 to $4.66 billion and earnings-per-share from $0.48 to $0.51." Farmer said the changes signify a broad shift in Apple's overall story away from iPods, toward an emphasis on Macs and new products in 2007. Numerous analysts are modifying their views on Apple shares following the release of new NPD data, which promises to offer a clearer picture of Apple's current financial situation.

Yesterday analyst firms Piper Jaffray and UBS both acted similarly, lowering iPod sales estimates and raising suspected Mac sales for Apple's September quarter. All three analysts agree that Apple's future looks bright heading into the holiday season, with new products such as the iTV digital media streaming device set to launch in early 2007 and a likely refresh of its notebook lines to the new Intel Core 2 Duo processor. Further expectations exciting industry watchers include the scheduled release of Mac OS X Leopard, a widely-rumored Apple "iPhone," and new reworked video iPods with larger screens.

Merill Lynch is adjusting iPod units, prices, and mix based on NPD data. "Based on our analysis of preliminary NPD data (from the smaller weekly sample in September triangulated with the larger monthly sample for July and August), we are lowering our fiscal fourth quarter 2006 (September) iPod units estimate from 8.3 (up 28 percent year-over-year) to 7.7 million (up 20 percent year-over-year) and raising ASPs from $177 to $184 to better reflect unit mix from NPD," Farmer said. The firm now expects ASPs to decline by 6 percent sequentially in the calendar fourth quarter of 2006 due to new pricing from Apple heading into the holiday season.

"We are raising our fiscal fourth quarter 2006 Mac units by 75K from 1.44 (up 16 percent year-over-year) to 1.51 million (up 22 percent year-over-year) to reflect the better than expected demand for new MacBooks Mac revenue increases by $100 million to $2.025 billion while holding ASPs steady."

The firm reiterated its "buy" rating on Apple shares with a price target of $88, supported by earnings scenario analysis and a mid 20s multiple, reflecting roughly 20 percent earnings-per-share growth for five years and perpetuity growth of 4 percent afterward.

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