UBS Warburg analysts Ben Reitzes, Jeff Brickman and Arun Sharma on Monday issued a research report that notes "impressive prospects" for Appleis iPod nano, with the company possibly selling more than 10 million iPods in the current quarter. They released the report, a copy of which was obtained by The Mac Observer, after a recent trip to check on industry sources in Asia.
UBS Warburg currently estimates sales of 8.3 million iPods this quarter, and the analysts said: "Running a sensitivity analysis to more iPod sales at nano price points yields up to 10 cents of upside to current fiscal 1Q06 EPS estimates of $0.45 ... It seems that suppliers clearly anticipate very solid adoption that could be beyond current expectations."
While Apple has received some negative publicity surrounding fragile LCD screens, the company responded to the issue by saying that it would honor affected usersi warranties. UBS Warburg acknowledges the problem but said: "We are not too worried about a material adverse impact on sales and profits from recent screen issues into the holidays. Apple has managed through iPod issues in the past with battery replacements and the related publicity."
UBS Warburg also believes that "a handheld device capable of video playback could be in the works," based on the analystsi meetings with sources. They wrote: "We would expect possible new devices to be HDD-based and look a bit like a larger white iPod with a bigger color screen."
The analysts add: "Even if a portable [video] player doesnit catch on, we believe that such a service could increase the appeal of Macs and the Apple brand, given a potential iTunes-like effect ... We believe that any new video iPods could make our estimate for 1.3 million in sales of HDD-based iPods conservative for fiscal 1Q06.
"We currently estimate 4.5 million HDD-based iPods will be sold in fiscal 2006, down 30% year-over-year, due to potential cannibalization from flash-based players."
Momentum Building for Macs
Finally, UBS Warburgis analysts see building momentum "for Appleis portables and iMacs. Our checks in Asia back this view, implying that sales of portables for Apple (particularly iBooks) are solid, which could make our estimates for overall Mac growth of 41% in 4Q05 and 28% in 1Q06 look conservative."
UBS continues to maintain a "Buy-2" rating on Appleis stock, with a US$64 target price. The analysts note that "risks include high fuel prices, the upcoming transition to Intel processors for Macs and any disruption in iPods from the transition from minis to nanos," but they "continue to believe that the company continues to benefit from the iiPod Multiplier Effect.i"
At 12:41 PM EST on Monday, Appleis stock was $54, up 0.73% for the day.