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Merrill Lynch Reiterates "Buy" on AAPL; Sees Mac Market Share Growth in 2005

Merrill Lynch Reiterates "Buy" on AAPL; Sees Mac Market Share Growth in 2005

by , 1:15 PM EST, December 23rd, 2004

Steven Milunovich of Merrill Lynch reiterated his "Buy" rating on Apple's stock Thursday, as well as his US$78 per share 12 month target price. In a research note to his clients obtained by The Mac Observer, Mr. Milunovich offered a variety of anecdotal notes that indicate that Apple's current quarter continues to go well, and said he expected Apple to gain market Mac market share in 2005.


Merrill Lynch modeled 4 million iPods sold when forecasting results for the December quarter, but the report said "an optimistic scenario would be 4.5-5.0 million." This is based both on limitations of the number hard drives produced during the quarter, 4.2 million, as well as another 1.4 million drives that were already in inventory.

Mr. Milunovich wrote that Apple's brick and mortar retail stories still have iPods available, though other retailers, such as Amazon, are back ordered. Several stories citing iPod shortages have been published throughout the US in the final days of holiday shopping.

Overseas, he said that Apple could "exit the quarter with some backlog." For instance, he wrote, "at the new store in London there was a line of 110 people waiting to pay last Saturday. The Sony store nearby was relatively empty."

He also noted that the iPod is the hottest seller at Japanese consumer electronics chain BIC CAMERA, which he called the Japanese equivalent of the Best Buy chain. At the same time, "local consumer rankings for HDD Sony Walkmans are quite low."


One of the most interesting aspects of the report deals with competition and market share. According to Mr. Milunovich, Apple is in no short-term danger of losing market share to the myriad of competitors using Microsoft's Windows Media format. Far from that, he believes that Apple is actually gaining market share.

"It's investors' nature to think countertrend, so there is concern that competitors will erode Apple's share," Mr. Milunovich wrote in the report. "So far, however, Apple has gained share. And the company should soon be entering the flash player market, which roughly doubles the available revenue opportunity. Although competition likely will have a long-term impact, the near-term variability may be to the upside."


Mr. Milunovich expects Apple to have strong iMac sales during the current quarter. Looking forward, he expects Apple to gain market share in the computer business during 2005 based on the iPod Halo Effect, "especially where Apple competes (above $500)."

If you are interested in Apple's stock, join our forum members in the Apple Finance Boards, a moderated forum for Apple Investors and people who are interested in Apple's financial dealings. For other stories regarding Apple's stock activity, visit our updated Apple Stock Watch Special Report.

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