ML lowers iPod, Mac, AAPL estimates

Anlayst lowers AAPL

March iPod sales slowed from the first two months in 2006, causing one analyst to lower his sales estimates for the March quarter as well as Apple's fiscal 2006. In a research note released to analysts, Merrill Lynch analyst Richard Farmer has reduced his March quarter estimates of iPod sales to 8.8 million (from 10.1 million) based on a triangulation of January and February NPD monthly numbers and current weekly data available for March. Farmer said that preliminary data for March is "most likely to reflect growth below both February and January (which were 140 percent and 66 percent, respectively). We assume mix shifts to international, which NPD numbers do not reflect," the analyst said; however, he noted that Apple may benefit from falling NAND flash prices. Farmer cut his overall 2006 iPod sales by 11 percent to 47 million.

The research firm believes that the market overreacted to the recent introduction of Apple's Boot Camp technology.

"We think the market overreacted to the 'boot camp' (Windows on Mac) announcements last week. Consumers that signal superficial interest may bail at the cash register when it's time to pay a premium for the hardware plus $200-300 for the Windows license plus more for duplicate applications not to mention the lack of support from Apple for the Windows camp and the need to reboot the machine when going back and forth from Win to Mac," Farmer wrote in his research note.

Long-term Mac estimates up, short term down

Farmer said that Apple's Boot Camp will increase sales of Macs in the long term, despite slower-than-expected Mac sales in the March quarter. "That said, we do expect some incremental Mac buyers and are raising our F2007E estimate of Mac revenue share of the global PC market by 0.25 percent from 3.45 percent to 3.7 percent." The analyst cut his Mac unit sales estimates for the March quarter to 1.1 million (from 1.3 million) due to the slow ramp in MacBook Book Pro production.

The new estimates reflect a nine percent sequential drop in quarterly Mac sales from the strong holiday quarter and modest increase of six percent increase in Mac unit sales year-over-year; however, higher priced desktops and laptops have increased its estimates for average Mac selling price to $1,370, up about 11 percent from the year-ago quarter.

Merrill said that its March quarter revenue estimates of $4.338 billion are now below consensus, but still represents 34 percent year-over-year growth. The company's EPS estimates of $0.45 are still a penny above consensus Wall Street estimates. The company maintains a "neutral" rating on Apple stock.

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