Research analysts comment on Leopard delay

Several research analysts have offered their thoughts on Apple's decision to delay its Mac OS X Leopard launch from the spring to the fall in order to ship its forthcoming iPhone on time. Analyst Ben Reitzes of research firm UBS lowered his fiscal year 2007 earnings estimates but increased his expectations for fiscal year 2008 to account for Leopard sales shifting ahead several months. "For fiscal year 2007 our earnings-per-share estimate is $3.20 (was $3.26), with revenue growth of 24 percent to $23.9 billion (was $24.1 billion)," Reitzes said. "For fiscal year 2008, we increase our earnings-per-share estimate to $3.90 (was $3.85) with revenue growth of 33 percent to $31.7 billion (was $31.6 billion)." UBS, like other industry experts, views the news as a net positive because the iPhone could contribute more to Apple's bottom line. "We would view any weakness on the news as a buying opportunity," the analyst added. The research firm maintained its $124 price target with a 'Buy 2' rating on Apple shares.

Similarly, American Technology Research senior analyst Shaw Wu sees the Leopard delay as a near-term setback, and says his firm has already accounted for slower Mac sales. Wu, however, believes that Apple's iPhone is not the sole reason for the company's delay of Leopard.

"While Apple cited a shift in resources to iPhone and more time for developers to beta test as reasons for the delay, our analysis indicates that if not for the 'secret' features, the core Leopard operating system would likely have shipped on time," the analyst said. "We believe the extra time Apple is allocating is for developers to test secret features that will likely be revealed at its WWDC 2007 conference starting on June 11, 2007."

Wu said he believes consensus sell-side estimates are still unsurprisingly aggressive and need to reset closer to his own, noting that he views the delay in Leopard and reset in sell-side estimates as short-term issues.

"We would take advantage of weakness to add to positions as we see upside potential to $118 based on 27x our calendar year 2008 earnings-per-share plus $13 in net cash. We believe Apple remains among the strongest fundamental stories with its vertically integrated end-to-end portfolio."

The analyst sees a worst case downside risk of $80-85 for Apple shares. American Technology Research maintained its 'Buy' rating with a price target of $118.

Piper Jaffray backs other analysts

Senior analyst Gene Munster of research firm Piper Jaffray today reinforced beliefs by both UBS and American Technology Research that Apple's delay of Leopard is only a temporary setback, and that the decision will only push income from Leopard sales back several months. Munster, like Wu, is not convinced that the delay is entirely related to the iPhone.

"The delay will shift an estimated $0.08 earnings-per-share or 2.6 percent (of calendar year 2007) from the June 2007 and September 2007 quarters into the December 2007 and March 2008 quarters ($0.04 from/to each quarter)," said Munster. "Apple reaffirmed the on-time arrival of the iPhone in June as part of the announcement, which we see as a positive that outweighs the delay of Leopard."

The analyst described Apple's track record for getting hardware out on time as hit or miss, but said his confidence in the iPhone shipping in June has risen from 70 percent to 90 percent. Munster also noted that while Apple is suggesting a late June launch of its iPhone, the company might deliver the device earlier at its Worldwide Developers Conference (WWDC), which begins on June 11th.

"While we are not convinced the delay of Leopard is entirely related to getting the iPhone out on time, we view the shipment of the iPhone as critical, and the timing of Leopard as a non-event."

Piper Jaffray maintains its 'outperform' rating on Apple shares with a price target of $124.

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