Analyst: Macintosh is Recession Proof

March 19th, 2008 at 3:00 PM - Apple Stock Watch by Jeff Gamet

The U.S. is either in a recession or on its way, depending on who you talk with, but Appleis Macintosh computer appears ready to hold its own and weather the economic downturn. American Technology Research analyst Shaw Wu expects that Appleis March quarter will prove that with Mac sales up about 40 percent year over year.

"So far, our sense is that the Mac business appears to be recession proof. We were already looking for robust Mac unit growth of 38 percent year over year, but now we think it may be closer to 42 percent," Mr. Wu said. "MacBook Air sales, which saw a little bit of a lull after a strong start, have picked up rapidly. Customers are attracted to its super thin form factor and do not seem to mind some of its limitations."

He added that the MacBook Air could account for at least 20 percent, and even as much as 25 percent, of the portable Mac sales for the March quarter.

Gross margins for the quarter may come in above Appleis 32 precent guidance, too. Thanks to favorable NAND flash, DRAM, and hard disk prices, Apple could report a 33.5 percent margin, coming in above Mr. Wuis 32.5 percent estimate as well.

Quarterly iPod sales are likely to be strong coming in between 9.5 and 10 million units. iPhone sales appear to be going through a slight pause, however, while consumers await the release of iPhone Software Update 2.0 in June. Despite the temporary lull, Mr. Wu expects Apple will still hit its 10 million unit mark before the end of 2008, and will likely make it all the way to 11 million units.

"We believe we will likely see an acceleration in iPhone adoption in the second half of 2008 and beyond with native Exchange support, more carriers, 3G (UMTS/WCDMA) and low-cost models," he said.

Mr. Wu is estimating Apple will report US$7 billion in earnings and $1.10 EPS for the March quarter, up from his earlier $6.9 billion and $1.02 EPS estimate. He is also raising his fiscal 2008 revenue model for Apple from US$31 billion and a $5 EPS up to $31.3 billion and $5.15 EPS.

Mr. Wu is maintaining his "Buy" rating and $175 target price for Appleis stock. Apple is currently trading at $130.74, up 1.07 (0.83%).

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