TMO Reports - Analyst: New iPods Likely to be Delayed

by , 12:55 PM EDT, June 28th, 2006

American Technology Research analyst Shaw Wu on Wednesday issued a new research report in which he said that he expects an updated iPod nano, as well as a new video iPod, will likely see delays due to a supplier change and battery life issues, respectively. He also dropped his price target on Apple's shares from US$101 to $74, "to reflect a higher risk profile and the market's lower trading multiple."

Mr. Wu wrote: "We wanted to share some perspective and insight from our proprietary analysis: 1) we previously believed that new nanos and the widescreen vPod could ship in calendar Q3 and Q4 of this year respectively.

"However, we now believe that both are likely delayed; 2) for the new nanos, we now anticipate the December quarter as more likely as we believe the delay is related to an SOC [system-on-a-chip] change from PortalPlayer to another supplier with an integrated audio/video co-processor (likely Samsung); and 3) on the widescreen vPod, we are picking up that battery life continues to be the key gating factor that could delay its release until 1H07 from Q4. We believe AAPL is exploring different ways to improve battery life including better battery management software, using a bigger battery, and using both NAND flash and microdrives."

The analyst expects Apple to keep its $199 and $249 price points for the iPod nano, doubling their storage to 4GB and 8GB. "We believe Gartner's 12 GB and above forecasts may prove optimistic," he wrote.

He also anticipates that the new video iPod may include wireless Bluetooth headphones, depending on Apple's progress with it. In addition, Mr. Wu thinks that the new unit will become "Apple's new high-end iPod and not replace the current vPod, which in our analysis, continues to sell well."

The analyst concluded: "While it may sound counterintuitive, a positive side effect of these product delays could mean better spacing of iPods in 2007. With the original nano and vPod released a month apart in late 2005, it created a very strong December quarter but exhausted AAPL's iPod pipeline for 2006. For these next-generation iPods, we believe AAPL will likely pursue a strategy with refreshes in a more linear fashion."

Despite the drop in share target price, Mr. Wu retained his "Buy" rating on Apple's stock. He also left his financial estimates unchanged: $22.1 billion in revenue and $2.45 EPS for FY07.

At 12:54 PM EST on Wednesday, Apple shares were selling for $55.72, down 2.98% for the day.

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