First on TMO - CSFB: Apple Stock Heads to $70; iMac Market Share to Grow

by , 9:40 AM EST, December 21st, 2004

Credit Suisse First Boston analyst Rob Semple raised the target price for Apple Computer (AAPL) Tuesday to US$70, saying sales of its iPod digital media device and the G5 iMac will propel company earnings to new heights.

"Apple is poised to significantly exceed its initial December quarter outlook issued on its fiscal fourth-quarter conference call in October," Mr. Semple wrote in his one page commentary obtained by The Mac Observer. "We estimate Apple's fiscal (fourth-quarter) results will reach $3.3 billion in sales and $0.55 in earnings per share, versus its initial guidance of $2.8-2.9 billion and $0.39-0.42 (respectively)."

Mr. Semple predicted Apple will ship 4.8 million iPods in its fiscal first quarter and will end up with "a substantial backlog, mostly in international locales." He said he believed many predictions of iPod sales had been "overly aggressive" and that a shortage of 1.8-inch hard drives manufactured by Toshiba is to blame. He said he believed hard drive shortages would be a thing of the past by March of 2005.

Mr. Semple believes Apple will gain PC market share this quarter, but is unconvinced Apple can sustain the growth.

"We believe unit shipments will increase 21% year-to-year versus market growth of 9 to 10%. The strength is being driven mostly by the iMac, which faces an easy year-to-year compare and is launching during the year's strongest period of consumer demand," he wrote. "Gaining share in PCs is key to Apple's long-term success, as holding share in a market with long-term revenue growth of 1% to 2% will be a drag on the overall business."

We are maintaining our Neutral rating owing to valuation concerns, but we do recognize that the apparent vindication of the "halo effect" will continue to drive strength in the stock during the seasonally strongest period of the year."

The so-called 'halo effect' is when Macintosh sales improve as a result of iPod sales. There is no direct evidence that such a condition exists and Apple has given evidence to back its claim. One factor that refutes the 'halo effect' is the fact that the percentage of Apple retail store visitors purchasing a Mac has remained flat for the last nine quarters.

Apple shares opened Tuesday at $63.56.