updated 03:15 pm EST, Wed January 10, 2007
AAPL targets raised
In the wake of Apple's iPhone announcement, analysts are continuing to raise their price targets on Apple stock and predict that the iPhone, which will spearhead revenue growth, is only the beginning of new innovative products from the Cupertino-based company. Research firm UBS raised its targets from $108 to $118, citing robust revenue growth in 2008, while Merrill Lynch -- which raised its target to $113 from $102 -- told clients that the higher-than-expected target price would also increase the company's revenues. With Apple's CEO Steve Jobs predicting sales of 10 million in 2008, UBS analyst Ben Reitzes called the device "revolutionary" and cited the company's introduction of a new computing platform: "We believe the iPhone is revolutionary and can thrive as a convergence platform for years to come. The device is an internet communicator, an iPod & phone in one, featuring a large touchscreen."
Touting Apple's innovation, Merrill Lynch also told clients that the phone would herald a new generation of mobile devices. "We're very impressed with the seamless hardware and software innovation in the iPhone, yet it's still early innings in a new generation of converged mobile devices that tap emerging internet services," Merrill analyst Richard Farmer wrote in his research note to clients. "Features not announced that seem natural in coming generations include GPS, speech & handwriting recognition, and video conferencing."
However, the Merrill analyst believes that the lack of tactile keyboard, while allowing greater flexibility, is not optimized for heavy email/blackberry use, which could limit its appeal to corporate customers. Reitzes also said that the device could cannibalize iPod sales up to 40 percent.
Citing the company's announced name change to 'Apple, Inc' (from 'Apple Computer, Inc.'), Reitzes said that the company's iPhone is only the beginning of innovative products that are expected this year, including the possibility of other ultra-portable computers.
"We believe Apple is not done innovating - and expect the company to release new products throughout the year including new Macs and iPods, additional content partners and possibly even ultra-portable devices that should stimulate revenue re-acceleration throughout the year," Reitzes told clients.
With Apple's December/holiday quarter earnings expected to be released next week, Reitzes said that checks indicate strong Mac and iPod demand -- especially for the iPod shuffle, which could indicate that its own previous estimates for iPod sales during the quarter are conservative. Reitzes does not expect the iPhone to change operating margins and expects sales of 850,000 iPhones this year, after it begins shipping in June 2007.
UBS raised its fiscal year 2007 EPS estimate to $2.87 (was $2.84) based on 25 percent revenue growth to $24.05 billion (was $23.76 billion) and operating margins of 13.3 percent (unchanged). The company now estimates iPod/iPhone unit sales of 54.6 million (was 54.1 million), including 850,000 iPhone units, reflecting an approximate 40 percent cannibalization rate of iPods.