TMO Reports - Merrill Lynch Ups Apple's FY06, FY07 Numbers on iPod Strength

by , 10:50 AM EST, January 11th, 2006

After Apple CEO Steve Jobs disclosed higher-than-expected iPod sales and fourth quarter revenues during his Macworld keynote on Tuesday, Merrill Lynch analyst Richard Farmer released a research report in which he substantially increased his expectations for the company's FY06 and FY07 revenue and EPS.

With Apple selling 14 million iPods versus the consensus of 11-12 million and raking in US$5.7 billion in revenue versus a consensus of $4.7 billion, Mr. Farmer raised his FY06 revenue and EPS estimates from $17.3 billion and $1.82 to $22.4 billion and $2.48. (The end of December actually marked the first quarter of Apple's 2006 fiscal year.)

Looking ahead to FY07, the analyst took his revenue and EPS estimates from $20 billion and $2.12 to $26.6 billion and $2.97. He noted that the vast majority of both increases stemmed from upping his FY06 iPod sales estimate from 37 million to 52 million units and his FY07 expectation from 41 million to 65 million.

Mr. Farmer also addressed Apple's transition to Intel processors, explaining that yesterday's hardware announcements put the company "an estimated 58-62% of the way through the Intel transition ... The bad news is 38-42% of the Mac platform has yet to switch, which could cause customer hesitation this year until the entire line is transitioned."

Given that concern and his expectation that iPod growth rates will start to decelerate, the analyst left his rating on the stock at "Neutral." At 10:50 AM EST on Wednesday, Apple shares were selling for $83.11, up 2.78% for the day. The company's stock leaped from the neighborhood of $76 per share to $80.86 on Tuesday, after Mr. Jobs completed his new product announcements at Macworld and disclosed the strong fourth quarter numbers.