ML: buy on AAPL weakness

Research analyst Richard Farmer of Merrill Lynch is urging investors to purchase Apple shares while the price remains low as a result of yesterday's announcement that the Cupertino-based company would delay its release of Mac OS X 10.5 Leopard until October in order to devote more resources to its iPhone. "We recommend investors use the current stock weakness related to Apple's delay of the Leopard operating system as a buying opportunity as it represents a temporary setback and we believe our long-term thesis is intact," Farmer wrote in a research note obtained by MacNN. "Leopard will still be available in beta version for developers in June at [WWDC]." The analyst retained his price objective of $113 based on earnings scenario analysis.

"[Apple's move] underscores the fact that the iPhone is at least as much a mobile computer as a phone or music player," Farmer said.

The analyst also reassured investors that the expected catalyst from users who waited to purchase Intel-based Macs until Adobe Create Suite was released will not be affected by Leopard's delay, and backed thoughts from two other analysts with expectations of delayed revenue as a result of the push-back.

"We are moving about $150 million of high margin upgrade software revenue (about $0.10 earnings-per-share) from the June/September quarters to the subsequent December/March quarters to account for the Leopard delay. On a fiscal annual basis this is more than offset by increases to gross margin accounting for component cost declines, mostly in the March quarter, along with other miscellaneous model tweaks. We believe our estimates may still prove conservative."

by MacNN Staff