Bear Stearns: iPod Phone 'Appears In The Works' (AAPL)

| About: Apple Inc. (AAPL)

Following a meeting with top Apple Computer (NASDAQ:AAPL) brass, Bear Stearns analyst Andy Neff sent a note to clients. Key excerpts:

● Positive Management Meeting. After meeting with CFO Peter Oppenheimer and VP of Product Marketing for iPod Greg Joswiak, we came away optimistic about Apple’s outlook for 2H06 with potentially a complete refresh of the iPod, “true” video iPod and other new product launches, though timing is hard to call. While investors are anxious about iPod data points, we would use the near-term weakness as a buying opportunity. AAPL did not provide any new financial update.

Innovation Is Key To Growth: Next Gen iPod Coming. While AAPL did not comment on potential new products, in addressing the issue of emerging competition and potential commoditization of iPod, it appeared to us that AAPL is likely to refresh the iPod product line ahead the holiday season (as it has done every year since the introduction of iPod). However, “true” video iPod (if launched) is likely to be offered as a complimentary product to iPods. Also, iPod phone appears to be in the works, although timing remains uncertain.

Testing Ways To Drive Mac Sales. With the new MacBook launched earlier today (5/16), AAPL noted that it has transitioned all of its notebooks and desktops (except for Power Mac) to Intel. While Apple launched Boot Camp to accommodate the use of Windows, it views the tight integration of hardware and software (Mac OS) as key to creating superior user experience, although it is looking at different ways to better address users needs for multiple OSs.

● Maintaining Estimates. We’re maintaining our ests. We’re at $2.15 in EPS for FY06, $2.75 in EPS for FY07. We are also maintaining our 3Q06 EPS of $0.48 on revs of $4.6bn - guidance calls for EPS of $0.39-$0.43 on revs of $4.2-$4.4bn.

● Valuation: Price Target At $94. We continue to view the stock’s valuation as attractive at 19x our CY07 oper EPS. We are maintaining our price target of $94 based on a 28x P/E on CY07 oper EPS and adding net cash/sh of ~$11, we remain buyers of the stock.

AAPL 1-yr chart: