“Apple extended its string of upside revenue and earnings surprises in the third quarter. The two key drivers of the Apple story continued to work—the iPod and halo effect. iPod shipments rose to 6.16 million units, up 616% year-over-year. And the iPod continued to lure Windows users into the Macintosh fold. Mac unit shipments rose 35%, three times the PC market growth rate. We’re raising our 2005 and 2006 earnings estimates, maintaining our buy rating and price target of $52,” Needham & Company analyst Charles R. Wolf writes in a research note released today.
“The current iPod sales run rate of over six million units per quarter necessarily implies that the sales growth rate will moderate going forward. However, as the installed base of Windows users owning iPods continues to grow fueling purchases of Macs, we anticipate that the growth in Mac sales will easily outstrip PC industry growth for the foreseeable future,” Wolf writes. “We have moderated the growth in 2006 Mac shipments for one reason. Apple will begin its transition to Intel processors beginning in the spring of 2006. It’s possible, if not likely, that many customers will postpone their purchases of Macs in anticipation of this event, which could extend into 2007. We expect the iBook and PowerBook will be the first Mac models to ship with Intel processors because Apple’s notebook lineup has been confined to G4 processors far too long as it is. The Mac Mini could also be an early candidate for an upgrade.”
“Over the past two quarters, the growth in Macintosh shipments was the highest in five years, indicating that the halo effect is beginning to kick in. It’s impossible to precisely measure the halo effect; that is, Windows users who purchase a Mac because they own an iPod. Apple does not collect data on the PC ownership profile of its buyers and would probably not share it if it did,” Wolf writes. “In our long-term forecast of iPod-toting Windows users who might buy Macs… we estimated that about 500,000 Windows users would purchase Macs in calendar 2005 [which] suggests that many Windows users purchased Macs for reasons other than their ownership of an iPod. The most obvious one is the virus epidemic that has invaded Windows PCs. Clearly, some Windows users bought Macs to escape it.”
Wolf writes, “Apple shipped about 11.5 million iPods in the first two quarters of calendar 2005. Our forecast for the remainder of the calendar year… has Apple shipping 15 million units in the second half of the calendar year for a total of 26.5 million units in 2005. This is somewhat higher than our long-term forecast of iPod shipments… which we first published in November 2005 and revised in February. Our forecast has Apple shipping 24.7 million units in 2005. Notwithstanding the possible upside in 2005 iPod shipments, our forecast is in no way a conservative one. It has iPod shipments increasing to almost 43 million units in calendar 2006, a 73% increase over 2005 and equivalent to over a 10 million quarterly run rate.”
Full report (PDF), complete with graphs, here.
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