Citigroup Smith Barney analyst Richard Gardner on Wednesday issued a research report that revises his 2005 and 2006 PC unit growth forecasts, reflecting "better than expected consumer notebook, West European and emerging markets demand in the first half of 2005."
Worldwide, he raised 2005 and 2006 unit growth to 9% and 7%, respectively, while the U.S. moved to 7% and 5%, respectively. However, he doesnit see this change having much effect on computer company stocks, including Appleis, which he assigned a high risk rating with a 12-month target price of US$40.
Mr. Gardner wrote their are many risks affecting stock of Apple Computer, including the move to Intel processors and the fact that "Microsoft and Intel alone spend 18 times as much on R&D annually as Apple, making it extremely difficult for Apple to maintain technology leadership...In addition, Appleis lack of scale relative to the Windows/X86 platform forces the company to charge a significant premium for its products, a premium that most are not willing to pay." He also cited Appleis need to stock 4-6 weeks of inventory in the channel at all times, versus Dellis zero weeks, as another disadvantage.
His view could change, however, "if Apple experiences a significant upgrade cycle within its professional markets which causes Power Mac shipments to come in above our estimate, or if consumer demand for PCs or iPods far exceeds our estimates."
Mr. Gardneris increased growth estimates also come with caveats: better sales during the first half of 2005 were driven by a decline in lower laptop prices because of decreased parts charges as well as the decline in the U.S. dollar versus the Euro. "Unfortunately, the first of these benefits has since waned and the second has reversed course," he wrote. "We remain cautious regarding 2H05E demand and continue to expect deceleration in yr-to-yr unit growth for the balance of 2005E and into 1H06E. In addition to the headwinds cited above, we continue to expect a cooling in U.S. and European upgrade cycles."