UBS: Software "The Magic" in Apple's Future

Revenue from Apple Computeris Mac OS X iTigeri, iLife i05 and iWork i05 will be "attractive" and "significant" in the next 12 months and will be the nucleus in getting consumers to buy Macintosh personal computers, UBS analyst Benjamin Reitzes said Monday in a research note to clients obtained by The Mac Observer.

"The magic (in Appleis future) could be in the software," Mr. Reitzes said. "The next big imultiplieri business to get attention will be Appleis software," which UBS estimated will approach US$1 billion in total revenues this fiscal year. "We believe the math behind Appleis software potential is attractive, making our estimates conservative."

Explaining what new products Apple has recently released and what is coming in the form of Mac OS X iTigeri by July, Mr. Reitzes wrote, "we believe that Appleis software is extremely well suited to the digital lifestyle that consumers are rapidly adopting." Together with delays in the release of the next version of Windows from Microsoft together with user complaints of viruses, Mr. Reitzes believes "the time is right for Apple to regain (market) share on the back of Tiger."

If Apple sells more Macs, Mr. Reitzes predicted "the revenue opportunity for software could be significant.

"In fact, one could argue that with its new stores, an enhanced online store and broadened distribution, this could be Appleis year to see its software sales surge," he wrote.

UBS is conservatively projecting total software revenue for the 2005 fiscal year at $1 billion, but if 25% of 14 million active OS X users upgraded to iTigeri, Mr. Reitzes estimates Apple could reap a revenue take of $406 million from its operating system upgrade alone -- $813 million if 50% of total users upgraded.

Mac mini, shuffle sales "still humming"

Despite shortages of the Mac mini and iPod shuffle, Mr. Reitzes reported "Appleis momentum continues" and raised his estimates on the companyis earnings for the current quarter from 41 cents to 45 cents and to $2.15 from $1.95 for the fiscal year, on expectations for a 67% jump in revenue to $3.19 billion. This is the tenth time USB has raised its earnings estimates on Apple since January 2004.

UBS is predicting Apple will sell 165,000 Mac miniis in the current quarter (up from 125,000) and 4.56 million iPods (up from 3.72 million. In terms of iPod shuffles alone, Mr. Reitzes is projecting Apple will sell 1.25 million in the quarter, versus an earlier projection of 1 million.

UBS stock target now at $99

Along with its positive earnings projections, UBS is targeting Apple stock to now hit $99 in the next 12 months, a jump from a previous projection a month ago of $85.

"We continue to believe that the iPod phenomenon is driving upside in Apple retail stores, sales of peripherals/accessories and now -- Mac," Mr. Reitzes wrote. "While Dell and HP may be seeing consumer weakness of late, it does not appear that Apple is feeling any of this pressure."