Piper Jaffray Speculates on Apple's Future, Sees 1TB iPod, More

Piper Jaffray analyst Gene Munster on Friday released a research report in which he and fellow analyst Michael Olson speculated on Appleis future. While he admitted such an effort "is virtually impossible due to the companyis lack of transparency," he used current trends to predict not only the existence of a 1TB iPod in five years but also, within the next year or two, "we expect to see wireless integration for transfer of audio, photos and video content between Mac, iPod, AirPort Express and other devices."

"Why would you even want a Terabyte iPod?" Mr. Munster asked. He expects that, in five years, demand for such a product will exist with the addition of wireless streaming from the device. "For example," the analyst wrote, "iPod users in their living rooms could scroll through 200 movies along with 10,000 photos and 50,000 songs on the iPod, and play them on a TV through a wireless connection."

As for the feasibility of such a device, Mr. Munster turned to Les Santiago, a senior research analyst at Piper Jaffray, who believes that a 1TB iPod selling for US$500 is possible within five years. Mr. Santiago expects that 1.8-inch drive capacities should reach 500GB in that time, enabling Apple to create a 1TB iPod with a two-platter drive, like it does now by combining two 30GB platters to produce a 60GB iPod.

The iiMediaCenteri

Mr. Munster posited that Appleis Front Row software, which recently debuted in the latest iteration of the G5 iMac, will be incorporated next in the Mac mini, enabling the diminutive computer "to become a hub for consumer digital media." He also expects the "incorporation of TiVo-like DVR capabilities and continued refinement of media center friendly menus and applications" by the second half of CY07 (calendar year 2007).

The analyst added that a new product, AirPort Express for video, will likely enable the wireless playback of files from a video iPod to a TV. He expects the iPod to gain its own wireless features, allowing it to stream media on its own. And over the next 12-24 months, Mr. Munster expects that "Apple will work with networks, film studios and other content providers to coerce them into offering more content via iTunes."

In addition, he saw Apple offering its own cell phone, the "iPhone," although he doesnit expect such a move to happen for at least 12-18 months. When the product announcement does occur, he sees Apple entering the market as an MVNO (mobile virtual network operator), which means the company would resell access under its own brand name on another provideris cellular network. For example, Virgin Mobile is an MVNO.

Lessons Learned

However, before introducing any new product, whether itis an iPhone or a 1TB iPod, Mr. Munster believes Apple will apply the lesson he thinks it learned from the launch of the Newton handheld in 1993: "Just because the technology is developed and a product is introduced, there is no guarantee that the market will accept it on a wide level. We believe that through the challenges presented by the Newton, Apple solidified its realization that a successful product must be highly simplistic and intuitive to gain mass market appeal."

The analyst also turned to recent history when addressing Appleis stock price, which has skyrocketed over the past year. Mr. Munster wrapped up his report by noting that the stock currently trades at 35 times CY06 EPS (earnings per share). However, the average Apple multiple on EPS over the past seven years, excluding the 1999-2001 bubble years, is 39x.

On the basis of that fact, he has raised his 12-month target price from $60 to $68. "We do not believe shares fully reflect new product and product enhancement potential as we enter CY06," he wrote. He also maintained his "Outperform" rating on the stock.

At 12:30 PM EST on Friday, Appleis stock was selling for $61.62, up 0.72% for the day.

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