Analyst: 1GB nano 'Will Serve to Continue Growth of Apple Footprint'

Piper Jaffrayis Gene Munster on Tuesday issued a research report in which he assessed the impact of Appleis new 1GB iPod nano, which was introduced earlier that day. Between that product and the lower prices of the 512MB and 1GB iPod shuffle, the analyst believes the changes "will allow Apple to continue to gain market share in the MP3 player space and grow the iPod footprint even further beyond its current reach."

Mr. Munster added: "Ultimately, a larger footprint for iPod should have a positive impact on other segments of Appleis business."

Comparing the companyis expanded product offering with that of other companies, the analyst noted that "none of these devices have shown that they can compete in two key areas: 1) user interface and 2) icooli factor. We believe that non-iPod devices must compete on price to gain adoption, but Apple has such massive relative shipment volume with the iPod that other MP3 player manufacturers are not able to replicate the economies of scale achieved by Apple."

Looking at other companiesi competitive offerings in the 1GB space, Mr. Munster noted that only three of them are priced less than the 1GB iPod nano: Creativeis Zen Nano Plus (US$140) and Zen Nano ($130) and SanDiskis Sansa ($130). Moving up the chart, six competitors are priced higher than the iPod nano, with the 1GB iRiver U10 selling for $250 at the top.

Amazon Top Seller Lists, Web Traffic

Before Appleis product announcements, Mr. Munster released a report detailing his look at the top sellers list and Appleis Web traffic numbers, something he does on a periodic basis. Of the former, he wrote: "We believe that the iPod is continuing to gain traction in the March quarter as evidenced by the number of iPods included on the Amazon Top Seller List for portable MP3 Players and All Electronics."

The analyst looked at the top sellers list on Feb. 2 and found that 8 iPods are now on the Top 10 Seller List for Portable MP3 Players, up from 7 on Dec. 15. In addition, the number of Macs in the Top 10 and Top 20 computers sold was 9 and 12, respectively, which was up from 7 and 9 the last time he checked. A year ago, 5 Macs occupied slots in the Top 10 list.

For Web traffic data, Mr. Munster turned to, which tracks "reach" (the number of users of a site), page views and traffic rank. On Feb. 2, Apple.comis reach was 15,450 per million users, which means that 1.545% of all Web browsers on the Internet had visited the site. On Dec. 15, that number was 12,200, while Appleis traffic rank was 49. On Feb. 2, the companyis traffic rank reached 41.

Page views per user of were 4.0, down from 4.3 on Dec. 15. That number is the average number of unique pages viewed per user per day. It was 4.3 on Mr. Munsteris three December checks, up from 3.8 on Sept. 21 but down from 4.5 on Sept. 12, which was shortly after the iPod nano was introduced.

A Few Words About Appleis Stock Price

Addressing Appleis stock price in light of his adherence to his $103 12-month target, Mr. Munster said that the "perceived trough in the growth curve provides an opportunity before the next peak." He believes that the recent stock sell-off, which caused the price to drop over 20% during the past three weeks, is "off primarily based on investor perception regarding the potential for an air pocket in growth over the next 1-2 quarters due to the Intel transition."

His response? "We would argue that Apple has, and will continue to have, various growth curves in different parts of its business that will sometimes be in sync with each other and sometimes not. To look at a potential short-term trough in these curves and extrapolate the business based on this period is short-sighted in our minds."

Mr. Munster noted that the introduction of the video iPod and iPod nano enabled Apple "to align 2 growth curves that ultimately generated massive unit volume increases following discontinuation of the mini." While he expects a "a slight air pocket is inevitable" as Apple transitions from PowerPC Macs to Intel computers, "this scenario is factored into Mac estimates and we do not believe the transition will lead to Apple missing numbers."

Looking ahead, the analyst sees Apple releasing "new iPods, an iiPhonei and other devices such as AirPort for video in the next 4-6 quarters, all of which will have growth curves that may align with other products that are hitting stride and lead to the next peak." In the big picture view, he sees his price target as achievable by the end of 2006. He also retains his "Outperform" rating on the stock.

At 1:39 PM EST on Tuesday, Apple shares were selling for $67.55, up 0.37% for the day. Shares dropped over 6% yesterday before rebounding this morning on the strength of Appleis product announcements.

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