CS First Boston Raises Apple to 'Outperform' on Mac Growth [UPDATE]

Credit Suisse First Boston has raised its rating on Apple Computeris stock to "Outperform" from "Neutral." The firm cited Appleis growing success with its Mac product line, including two straight quarters of market share gains, as the reason for the upgrade.

Analyst Robert Semple raised the price target for AAPL from US$40 per share to $45. In his research note, a copy of which was obtained by The Mac Observer, Mr. Semple wrote: "We believe the next leg of Appleis share price ascension will be driven by success in the PC market, where the Mac has just completed its second consecutive quarter of share gain."

He continued: "We expect iPod to continue to deliver strong growth, but its position as the HDD and flash MP3 market leader will eventually limit its growth to that of the market. In the PC market, however, Appleis 2% share has significant upside opportunity regardless of market growth." Mr. Semple estimated that Appleis product offerings, excluding the eMac, only addressed 22 percent of the PC market until the release of the Mac mini, which pushed that number to "almost 100 percent."

He summed up Appleis position in the PC industry thus: "Essentially, Apple has shifted its position from focusing on its loyal installed base of users, to providing competitively priced, easy to use alternatives to the Windows market at a time when Microsoft is plagued by security issues, negative press, and a perceived dearth of innovative products."

When coupled with the impending release of Mac OS X v10.4 "Tiger," Mr. Semple said that Appleis market share could rise from 1.8 percent in fiscal year 2004 to 2.3 percent during the current FY05 and 2.5 percent in FY06, pushing the companyis total number of Macs sold in a single year above the five million mark in FY06.

While the shift to higher sales of lower-margin consumer products will hurt Appleis gross margins, Mr. Semple said that the iTunes music store and the iPod accessories business will offset those losses. As a consequence of the companyis gains, the analyst has raised his FY05 and FY06 earnings per share estimates to $1.35 and $1.61, respectively.

As The Mac Observer posted this article, Appleis stock was trading at $36.65, up almost 3.25% for the day with less than two hours until the close of U.S. markets.

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