Lehman Bros: Rising Apple Momentum, New Notebooks - iPhone 3G Glitches Seen as Minor

by , 3:15 PM EDT, August 14th, 2008

Lehman Bros. analyst Ben Reitzes sees the expanding iPhone distribution as a major plus, and that has made previous cash flow estimates for Apple conservative. The Best Buy announcement makes the iPhone available on over 3,000 outlets, and the previous estimate of 3.8 million iPhones to be sold in the September quarter is now seen as conservative. He also provided some predictions for the new Apple notebooks.

In two notes to investors this week, obtained by TMO, Mr. Reitzes wrote that the iPhone halo for the Mac will continue to year's end, that customers are showing a willingness to invest in the iPhone platform via the App Store ands that new iPods should appear in early September with new notebooks shortly thereafter.

"Our checks indicate that demand for the iPhone remains very robust and we continue to expect that iPhone sales will ramp with improved availability throughout the quarter. Note that we have seen a major improvement in iPhone availability in the US starting 7/28, but we still do not expect supply to completely meet demand until September -- especially in light of the increased distribution both in the US through Best Buy and abroad," Mr. Reitzes wrote.

" ... we estimate at least 8.3 million iPhones could be sold in fiscal 1Q09 (December) with 24.2 million sold in FY09 -- both estimates look very conservative. Note that Apple expects to be selling the 3G iPhone in over 70 countries by the end of calendar 2008. Note that upside to iPhone sales should boost Apple's free cash flow (we believe shares are very undervalued on this metric)," the analyst added.

Responding to investor concerns about the reports of some customers having issues with dropped 3G calls, Mr. Reitzes said, "... it does not appear that Apple is overly concerned at this time. We don't believe this is a material problem at this point and still believe that demand is extremely strong with expanding distribution worldwide."

The Lehman analyst also provided some predictions for the new Apple notebooks. "We continue to believe Apple is readying a whole redesign of its notebook families in September and October adding more MacBook Air-like features to the MacBook Pro and MacBook lines, in addition to a few more Air SKU's. We also believe Apple could still introduce a new category with an ultra-portable device maximized for media-playback, messaging and a mobile lifestyle over the next six months."