Bear Stearns Ups AAPL Target to $70, Based on Better nano Availability

Bear Stearns analyst Andrew Neff on Wednesday issued a new Apple research report in which he raised his 12-month target price to US$70, based on sales channel checks that showed improving availability of the iPod nano, as well as continued healthy demand for the nano and the new video-capable iPod.

In addition, Mr. Neff, citing historical trends that show large sales increases of hot products during the holiday season, said that he has raised his iPod shipment total to 14.1 million units for the December quarter. Thatis a 208% increase over iPod sales during the same quarter last year and a large jump from his previous assumption of 10.4 million units.

The analyst also increased his iPod ASP (average sale price) from $204 to $220, "owing to a higher mix of iPod nano and iPod with video," and bumped his Mac numbers from 1.43 million units with an ASP of $1,256 to 1.44 million units with an ASP of $1,261. All those higher numbers contributed to a jump in his EPS (earnings per share) estimate from $0.52 on $4.85 billion in sales to $0.69 on revenue of $5.85 billion.

For Appleis fiscal year 2006, which ends next September, he increased his EPS estimate from $1.85 to $2.25 and pushed total iPod sales from 34.1 million units to 44.8 million, a 99% increase over FY05. Mr. Neff also slightly increased his Mac shipment number from 5.39 million units to 5.42 million.

Looking ahead to fiscal year 2007, Mr. Neff extended his bullish forecast, increasing EPS from $2.10 to $2.60 and iPod units from 40.5 million to 52.3 million. He expects Apple to sell 5.9 million Mac laptops and desktops that year.

Meeting With Apple Management

Mr. Neff on Tuesday held separate meetings with Apple CFO Peter Oppenheimer and Chief Software Technology Officer Avie Tevanian. Both executives said that Apple "has yet to see any impact" from competition in the MP3 player market, with a U.S. market share that has held steady at 75%. Worldwide, Apple has gained share in other geographies, with a jump from 30% to 50% in Japan cited as an example by the analyst.

While Apple thinks the iPod will be the preferred device for listening to music, the company "is closely monitoring the developments within the cell phone market with keen interest," Mr. Neff wrote. "As for other markets or and potential feature enhancements (i.e., FM tuner or satellite radio), it noted that it has no interest in participating in these markets at present given the lack of user interest."

The two Apple executives also told the analyst that the Intel transition "is progressing on track," with no issues expected. The company has almost completed porting its own software to the Intel architecture and "expects all the applications (including third-party application) to be compatible by the time of the Intel-based Mac launch, although some applications optimized for PowerPCs may suffer some performance degradation issues."

However, Apple noted that the current version of Microsoft Office will run on the new Macs "without any performance degradation." The executives confirmed that the company still has no interest in selling Mac OS X for use with other Intel-based computers, although it will allow users to install other operating systems on the new hardware. Mr. Neff said that the latter could "potentially expand Mac hardware adoption to the larger Microsoft OS users."

Mr. Neff maintained his "Outperform" rating on Appleis stock, which was selling for $64.29 per share at 2:21 PM EST Wednesday, up 3.23% for the day.

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