Will analysts stick with Apple this time?

Apple Computer ’s stock price continues to set post - Power Macintosh G4 Cube platter , most recently last week with a closing monetary value of $ 68.44 per share on Monday , November 29 . That ’s the company ’s sixth - high closure Mary Leontyne Price of all time ; the watermark remains $ 72.10 per ploughshare on March 22 , 2000 .

What sent Apple ’s farm animal price up 6 percent in one day this clip ? Evenmore analyst excitementover the iPod , and the opinion that everything it touch turns to gold , including the Macintosh . Merrill Lynch had a $ 61 per share ( in U.S. dollars ) toll target on Apple strain , but as the shares are already more than 10 percentage beyond that price , the business firm raised its cost target to $ 78 per share , as well as boosting its quarterly and annual earnings estimates for Apple . The new quarry “ represent a 2.2 multiple use to initiative value over sales and is a 20 percent insurance premium to hardware Almighty like Dell and Lexmark . ”

That ’s proper — Merrill Lynch now thinks Apple stock is worth 20 percent more than Dell pedigree given the same sales . Why ? Because Apple ’s establish base is so small . mart ploughshare change that would seem trivial to Dell could make a big deviation to Apple . Not that Merrill Lynch await such change : “ We have not convert our Mac estimate , ” the written report said , “ so if iPod success spills over to Mac sales there could be additional upside to our estimate . ”

All this money is amount from the iPod . Merrill Lynch raised its estimation of December quarter iPod sales to 4,000,000 units , up from the previous projection of 3,500,000 units , and “ take note the gimmick is meet with riotous consumer espousal than Sony ’s Walkman in the 1980s . ” Banc of America is even more bullish , set a $ 73 price object for Apple ’s shares , up from a long - superannuated $ 47 per share , on a belief that Apple will trade 4.1 million iPods by the end of calendar year 2004 .

UBS raised its target price from $ 66 per percentage to $ 77 , raised its fiscal year 2005 revenue prognosis to $ 11.1 billion from $ 10.9 billion , and raise Apple ’s estimated remuneration per share for financial year 2005 by 10 cent to $ 1.40 . UBS analyst Ben Reitzes now expects Apple to earn about $ 180 million in profit in the December quarter , largely because of great iPod sales . A UBS survey of US retail merchant “ showed strong need ” for what UBS called the “ higher - margin ” iPod photo and iPod miniskirt devices , though that ’s a number bewildered : Apple executives have hint on multiple occasions that iPod miniskirt margins are slightly smaller than those for full - sizing iPods .

Fantasy devices

That ’s not the only miscue in what Alan Greenspan might have call the “ irrational exuberance ” these psychoanalyst now display for Apple . Merrill Lynch continues to insist that Apple will release an iPod with flash lamp RAM reposition in the next four months ( a impression that ’s been expose before , and thatJohn Gruberpicks up again ) , and might well release other exciting products like an “ amusement server . ”

If you ’ve never pick up of an entertainment server before , do n’t worry — Merrill Lynch just made it up . It ’s the latest in a long descent of Wall Street prediction about the future of TV that have , in their integrality , been almost totally wrong . Wall Street continues to believe that some magic box will keep in line and expand your video in an net worldly concern , despite that after ten long time of attempts from WebTV to Pippin , nothing has succeeded as well as the Mac - friendly TiVo digital video recorder , but Wall Street uphold to enunciate TiVo “ doomed . ”

Therefore , analysts keep imagining new set - top boxes that will become the centre of attention of your television receiver life . A few geezerhood ago , it was going to be base on Microsoft ’s Media Center PC combination , until they figured out no one really want a Media Center PC . Now , call such box “ too complex and unstable , ” Merrill Lynch secern its customers , “ It come to us as more potential that either ( 1 ) the game console will move up market place to become the leading gimmick or ( 2 ) a young system we knight the amusement waiter will be make . ” The firm went on to imagine Apple creating this gimmick with applied science from iTunes , iPhoto , iDVD , AirPort Express , and ( of course ) the iPod : “ A 200 GB Apple server at a fairish cost and perchance with PVR technology could be Apple ’s next category Orcinus orca . ”

Some affair never change . Analysts who insist that a merchandise family should be taking off , but find that it is not , regularly pressure Apple Computer to introduce the field and show everyone how to do it so the analysts can be prove correct . Just in the Steve Jobs era , analyst have insisted that Apple ’s best opportunity for Microsoft - like growth is in making cellular phone speech sound , organizer , set - top box , digital video recorders ( include more than one suggestion to purchase TiVo , Inc. ) , PC knockoff , and most recently , handheld video histrion . The analysts ca n’t figure out why the perfectly sensible idea of convergence entertainment has n’t caught on , and since they did n’t see why digital medicine had n’t caught on before the iPod , they ’re looking to Apple to “ fix it . ”

No matter how cautiously Apple sets expectations , this sort of stuff proceed to filter into the business sermon . And it ’s not like Apple does n’t explore ideas — Steve Jobs revealed this year that Apple did producea PDA prototypebut kill it before introduction . Jobs also annul persistent rumor of an Apple tablet computer or cell phone , but you’re able to play those rumors will be back as well — oh , wait , the cubicle sound rumour was backjust last week ! ( Those who think of Apple’sannouncementin July about figure out with Motorola to build an iTunes music player into Motorola ’s new phones may not be as surprised about indications the two party are — shockingly — working together on cell phone engineering . )

Seasoned Apple observers are therefore cautioned about think remuneration estimates establish on such barbaric and unsupportable hypothesis . Merrill Lynch ’s ratings are establish on self-colored iPod and Macintosh gross revenue idea , says the firm , but it ’s clear that the analysts behind the story are enthusiastic about Apple saving their rhetorical Viscount St. Albans without much evidence it will pass off .

Imagining Apple

The iPod has herculean mojo over Apple ’s stock price aright now , just as the iMac and iBook did back in 2000 before the technical school house of cards burst on the rounded corners of all those unsold Power Macintosh G4 Cube machines . Any significant report of an iPod stumble could send the stock price plummeting , just as the Cube stumble did in 2000 . Every calendar month there ’s another chronicle that enunciate , in essence , “ Apple ’s medicine - player dominance with the iPod is about to end because now other companies are making digital players , and they ’ll take the market aside from Apple just like Windows did . ” But as yet , no one ’s number up with a player that outshine the iPod , even though the learned person keep believing someone will do so just any solar day now .

A number of companies clearly desire to take the iPod ’s market place share from Apple , and they ’ll continue trying to do so , so Apple ca n’t rest on its laurel . The point is not that the iPod is perfect , but that analysts are highly weak , believing in fantasy gadget and likely to change from “ the iPod is the achiever story of the tenner ” to “ Apple ’s going to lose it all again ” faster than you want to suppose .

Apple ’s breed price is dally with its criminal record in high spirits because the analysts keep say the sky ’s the terminus ad quem . If anything , no matter how slight , bring in them convert that tune , you’re able to expect uninformed investors to dangle the broth like a fucking Dell laptop computer assault and battery . await at what happened last Friday . Charles Wolf of Needham & Co.downgradedApple Computer shares to “ give ” for a childlike reason — he’d set a target price of about $ 70 per contribution , and the stock was trading at about $ 70 per share , so he does n’t think it ’s a bargain any longer . Or , in analyst speak , “ most of the top is now captured in Apple ’s current ploughshare price . ”

Wolf ’s judgement of Apple ’s underlying lucrativeness did not change . How did investors react ? They sent the stock price down $ 2.53 per share , and a aggregate of $ 5.76 for the hebdomad , close at $ 62.68 per share . That ’s 8 percent off of Monday ’s sixth - highest closing price ever , but still Apple ’s thirtieth - high end of all time ( at least , as of this writing ) . That ’s what modest “ bad ” news can do . In September 2000 , when Apple announced one good afternoon that Power Macintosh G4 Cube sales were far below expectations , the party ’s pedigree recede more than 50 percent of its value in a single trading day . The price did n’t recuperate for nearly four years .

Just a few months past that recovery , we ’re back near the record high again , even though Apple ’s business fundamentals have n’t change since a year ago . The only difference is that now , when Apple says the iTunes Music Store is a success and that people really bonk the iPod , analysts believe it — for now .

Two weeks ago , the Los Angeles Timessuggestedthat the iPod might be a fad , “ the Rubik ’s Cube of the twenty-first hundred . ” To its quotation , the paper have Steve Jobs refute that , and he said the iPod ( in the article ’s Holy Scripture ) “ is capitalizing on a fundamental fracture in the means people buy and enjoy entertainment in the digital old age . ” Book of Job himself said , “ We did n’t sell two million of them last quarter because it ’s trendy , we sold two million last quarter because it ’s a phenomenal product that ’s reinvent the way people love music . ”

flop now , psychoanalyst believe the digital music thespian is here to stay , and that the iPod will define the category for years to add up . Should they break off believing that for any ground at all , you wo n’t want to see the investment funds butchery . Apple ’s majuscule Troubles of 1996 started when the company post a loss — not due to low requirement for Macintosh computers , but due to an out - of - control base that was eating up profits . The press immediately started question Apple ’s futurity , and requirement plummeted , requiring two CEOs and nearly $ 2 billion in loss to correct .

The expert decline to let go of the bumble Apple Computer that they imagined , and examine the real caller with popular products . That ’s stay unfeigned over the past tense decennium , as analysts carry on to believe that Apple ’s Macintosh business ca n’t be all that profitable or grow much as long as other operating system exist . There are sign of the zodiac of Leslie Townes Hope , though : psychoanalyst Rebecca Runkle of Morgan Stanley say last calendar week that Apple Computer has the expert fortune of any PC Almighty of gather market place portion in 2005 . That ’s undecomposed — but news that IBM , a troupe with more than doubly Apple ’s world-wide market place part , may be perish the PC business could be seen as bad .

We ’re approaching the same smear on iPod road that January 1996 saw on the Macintosh road , and there ’s wanted piddling indicant that any of the psychoanalyst loitering by the side of the road are hold up to behave any other than . As long as iPod sales shine , they ’ll cheer like softheaded . If they do n’t , no matter how profitable the iPod and Macintosh businesses stay for Apple Computer , investors should brace themselves for a bumpy stretch of road .