In an endorsement of Apple Computer Inc.s rumored move to 64-bit computing, Needham & Company Inc. today upgraded its rating of the Mac maker from a “hold” to a “buy,” setting a target price of $23.
In a research note Wednesday from Needham analysts Charles Wolf and Justin Udelhofen, the firm cited an anticipated rebound in Power Mac sales thanks to the new machines as well as improved iPod sales and the forthcoming iTunes Music Store for Windows.
The report from the New York investment banking and asset-management firm said that “the gigahertz gap between the Power Mac and Windows machines should significantly narrow when Apple most likely introduces new Power Macs running on IBMs 970 processor family” at Apples Worldwide Developers Conference in San Francisco next week. However, Needham noted that the announcements timing brings risk, and that if the processor is not produced until this fall, an Apple release could be delayed. “But its not a question of if, but when,” the analysts said, forecasting that based on past Power Mac releases, the new models wont ship until the fall.
The research note also cites Web reports in suggesting that the first release of the 970 will run at speeds ranging from 1.4 to 1.8GHz. While the report said this was “still low by Intels standards,” it projected that the 970 could hit 2.5GHz by mid-2004 and 4 to 5GHz by 2005. eWEEK reported on the forthcoming models last week.
Needham expects the new chip to boost Power Mac sales in the first quarter of fiscal 2004, ending a two-year lull that the analysts blamed in part on the slow rate of performance increase to Motorolas PowerPC G4 processors, which currently drive all Power Macs. the report also noted that the release of QuarkXPress 6.0 was announced for Mac OS X last week, which the analysts expect to boost Power Mac sales among its core market of graphics professionals. Additionally, Needham said it was seeing “surprising strength” in the advertising market for next falls television season, which is expected to boost Power Mac sales to creative markets.
Citing low margins on music downloads, the analysts said they dont believe the iTunes Music Store will have a short-term material impact on earnings, but they were impressed by sales of the new iPods, for which Apple received 110,000 orders in the first week of availability.
“Although Apple has not provided subsequent updates on iPod sales, anecdotal evidence indicates that sales have continued at a brisk pace,” the research note said. Needham believes that iTunes will be released for Windows by this fall, followed by an “exponential increase” in downloads at the Music Store. “What were counting on is a corresponding pull-through of iPod sales to Windows users,” the report said.
The analysts also said that they see the port of the iTunes Music Store to Windows as an abandonment of Apples Mac-only software approach. The report said that this “overdue move” will allow Apple to target a wider market, positioning it as a “digital entertainment company” that can use future digital devices to offset the possibility of poor PC sales.
Needham also raised its 2003 earnings estimate from $0.22 to $0.24 thanks to the uptick in iPod sales, and its 2004 estimate from $0.50 to $0.60 based on its forecast of higher iPod and Power Mac sales.
Matthew Rothenberg, managing editor of Ziff Davis Internet, contributed to this report.