Merrill Lynch Cites 'Short-Term Risk, But Long-Term Benefits' From Intel Switch

Merrill Lynch analyst Steve Milunovich on Tuesday issued a research report in response to Appleis announced move to Intel-based Macs within two years. He writes in it that he expects the switch to result in "a better value proposition for the end user" and notes that it involves "short-term risk, but long-term benefits."

Mr. Milunovich also believes that the move could even "open the door to your living room ... Intel processors could help Apple offer a low-cost Mac media center to sit under the TV. The new device, powered by a more cost-effective chip from Intel, could be the way station for digital media such as photos, music, TV and movies. Appleis new iTunes upgrade includes codec to run MPEG-4 movies and clips."

In the meantime, the switch poses a "tough task ahead for software developers ... Thousands of software applications will now have to be recompiled to run on both PowerPC and IA Macs, which could turn into a difficult endeavor. Microsoft said it plans to create future versions of Microsoft Office for the Mac that support both PowerPC and Intel processors: timing here is critical."

Apple also announced that it will deliver its two millionth copy of Mac OS X v10.4 "Tiger" by the end of this week, causing Mr. Milunovich to "add an additional penny to our estimates. We originally expected that only 6.5% of the installed Mac base would upgrade, but that figure now may be in low double digits. We have increased our fiscal 3Q estimate to US$0.30."

He reiterated his "Buy" rating on the stock and cited a $51 12-month price objective. He noted that the stock is currently down -- it was down over two percent to $36.97 around 12:30 PM EST on Tuesday, despite a rising Nasdaq -- but said "that could be from the hangover left from last weekis battery failure lawsuit and higher inventory reports. Some may insist that Apple is giving up its competitive advantage using IA but Jobs said that imore than even hardware innovations, the core of the Mac is (still) the operating system.i"

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