Best Buy Deal to Increase Apple Distribution

Apple and Best Buyis store within a store pilot program is expanding, and will more than offset the loss of distribution points caused by CompUSA closings. The expansion will include 200 stores by fall 2007, and Piper Jaffray analyst Gene Munster expects many will be walled off with a boutique feel.

"What is clear, you wonit wander around Best Buy to shop for Apple," he said. "A good way to think about Apple & Best Buy is the Coach or Chanel store within a store concept at Nordstrom."

In February 2007, CompUSA announced that it is closing 126 of its retail locations, which means Apple is losing its presence in all of those stores. Appleis expansion into 200 Best Buy stores, however, will create 74 more additional distribution points than are available today.

Apple already has 7,500 distribution points throughout the world, so the Best Buy store within a store expansion equates to only a 2 percent increase in Mac distribution locations, or less than one percent in increased sales. More importantly, the expansion indicates the pilot program has been successful for both Best Buy and Apple, and that success could eventually lead to a full Apple presence in all 822 Best Buy retail locations.

Mr. Munster commented "Due to CompUSAis closings, the addition of 200 Best Buy stores to the Mac channel means that Mac distribution points continue to increase. But this news indicates that the pilot is succeeding, and further expansion should have a material impact."

Piper Jaffray is maintaining an "Outperform" rating and target price of US$124 for Apple stock. Apple is currently trading in the pre-market at $94.33, up 0.06 (0.06%).

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