Needham & Co analysts yesterday raised their Apple price target from $83 to $104 on the strength of an increased shift to profitable music product sales.
"Although we’ve increased our forecast of iPod sales on the strength of higher than anticipated first quarter shipments, the key driver of the increase in our price target is a shift in the mix of sales from low margin peripherals to higher margin music."
"We’re also raising our earnings per share estimates - from $1.85 to $2.05 in fiscal 2005 and from $2.25 to $2.50 in 2006. Maintain Buy," wrote analyst, Charles Wolf.
Wolf expects Apple to retain a large slice of the hard drive-based music player market, and to steal half the flash-memory based player market.
Apple stays strong
"We’re now forecasting that the classic and mini iPods will maintain a 65 per cent share of the hard drive portable music player market, up from 60 per cent previously. We’ve also raised our forecast of the Shuffle share of the flash player market to 50 per cent from 40 per cent previously," he explained.
The analyst also predicts a massive increase in music sales, revealing, "Apple generated $177 million in sales of songs at the iTunes Music Store and iPod accessories in the first quarter". This is highly significant - it's a 400 per cent increase. iTunes music sales are now worth $450 million per year, "and growing rapidly", he said.
He estimates iPod owners to be buying $17 worth of music per quarter, and has deliberately minimized any dependency within the prediction on switching users form Windows to Mac, or any major increase in Mac marketshare.
"Light years ahead of Windows"
Wolf observes that Apple's at a crossroads with a recovery that begins with the launch of OS X, an OS that is now "light years ahead of Windows".
Apple's inspired realization that consumers were ready to shift to digital consumer electronics products also helps. Its software and operating system means the company now offers the best collection of applications for the time, he adds.
Results could easily exceed expectaitons"
With the iPod and affordable Mac mini now available to consumers the company has a good opportunity to win Windows converts, he said, describing this as a "one-two punch". With Apple's epoch appropriate software likely to keep those Windows switchers on the platform.
Despite these opportunities, Wolf is conservative in his assessment of the value of Windows-switchers to Apple's bottom-line. His predictions are based on just 11 per cent of iPod-owning Windows users switching to Mac, with one in ten of these later abandoning the platform.
With Mac mini's selling strongly worldwide, Wolf says: "It’s possible, then, that the actual switch rate by Windows users could end up far higher than we’ve forecast," he said.
Apple's current target price is $88.93.