UBS analyst Ben Reitzes on Wednesday issued a research report detailing his reaction to Appleis iPhone, calling it "a revolutionary device [that] can thrive as a convergence platform for years to come." He expects Apple to sell 850,000 of the devices during its current fiscal year, which concludes at the end of September, and another 7.4 million devices during its next fiscal year. As a result of the increased revenue from those sales, Mr. Reitzes increased his target price from US$108 to $118.
Mr. Reitzes noted: "We have incorporated iPhones into our iPod unit forecasts starting in fiscal 3Q07. In an effort to be conservative, we have factored in an approximate 40% cannibalization rate of iPods [to our FY07 and FY08 estimates]." He also expects the iPhone to increase the "halo effect" that the success of the iPod has had on Mac sales: "We also believe increased interest in iPods and the iPhone should lead to long-term PC market share gains for Apple, which we believe can provide significant top line benefits and earnings power."
On Apple TV, the analyst commented: "Because it is a new market category with consumer education required (especially at a $299 price point), initial sales of the Apple TV could be limited to Apple loyalists at first -- much like the iPod market when it began. Apple sold about 378,000 iPods in its first year of sales (2002).
"Assuming first year Apple TV acceptance numbers are similar -- in the 400,000 - 500,000 range (Apple will realize about 10 months of shipping in calendar year 2007), with a price point of $299, --this puts revenue in calendar 2007 from the Apple TV at about $135 million." He already had his Apple TV estimates factored into his financial models, since Apple previewed the device last September.
Mr. Reitzes added: "Through the Apple TV, we believe Apple is embarking on its next chapter in multiplying its revenue streams as it becomes more established in the digital home arena. With a foray into digital entertainment, we believe that Apple can expand revenues into incremental video/film downloads, digital storage and portable media devices. Also, we believe the evolving ecosystem can lead to higher sales of Macs given OS Xis unique ability to bridge the digital divide in the home in conjunction with iTunes."
While Apple has gotten 2007 off to a strong start, Mr. Reitzes believes this is just the beginning. "We believe new products should help stimulate existing opportunities for revenue acceleration throughout the year," he wrote. "Several opportunities are still not in our model including ultra-portable devices, additional movie partners, new Macs (likely to come by June) and new iPods -- we still believe a true wide screen video iPod could be announced by June. In addition, we believe Apple is likely to hold another event by April or May to launch Leopard and/or other new products."
At the start of the trading day on Wednesday, Apple shares opened at $92.57, having rose $6.19 from their $86.38 starting point on Tuesday. The companyis Macworld announcements, particularly the iPhone, were credited with the steep rise in the stock price.