Apple Surge Expected - RBC

"Massive" back-to-school Mac computers sales for Apple Inc. (AAPL) might not mean much to the market on the surface, but when each 25 basis point increase in market share produces an extra US$1-billion in revenue, things start to come into focus pretty quickly.

The strong forecasted sales could drive upside in the company’s fourth quarter, according to Mike Abramsky at RBC Capital Markets. The analyst told clients that data from 4,400 corporate IT buyers and adopters suggest “unprecedented intentions” in the quarter. In the next 90 days, 34% plan to buy a Mac laptop and 30% expect to purchase a desktop.

As a result, he expects Apple’s share of the global PC market will rise to 4.2% in calendar 2009, up from 2.9% in 2007. In addition to the revenue gains this will produce, the analyst said each 25 basis point increase equates to US15¢ in earnings per share.

One reason for the surge in demand is the halo effect produced by the iPhone. RBC said 17% of respondents were more likely to buy a Mac after the iPhone 3G launch. Mr. Abramsky also said there is a 70% chance Apple releases a prepaid iPod/phone and/or iPhone as soon as the fourth quarter, which might push global momentum higher.

He reiterated his “outperform” rating and US$200 price target for Apple shares.

Comments

[Vlada Kynsky:]

It seems like there is not the end of IT spending cycle. At least for Apple.

2008 Aug 21 01:03 PM

[taojones:]

steve jobs is going to have to buy bigger mattress to store all the cash in

2008 Aug 21 02:23 PM

[Shorting Sh...:]

Time to buy one of those troubled banks to store the cash, and maybe fix the financial crisis too.

2008 Aug 21 02:37 PM

[jmmx:]

Sounds good to me!!

But price of $200 - what time frame is that?

Also - it seems to me that his earnings figures are a bit low. Seems like he is basing it roughly on 14% net margin. But the Macs have a higher margin than the average part of the business. Add to that the additional economies of scale, and I would see a lot more like 0.20 per $1B in sales. That would give us a full $1 extra EPS. (4.2 - 2.9 = 1.3 = 5 x .25; 5 x 0.20 = $1) (roughly) or an extra $30/share.

2008 Aug 21 03:14 PM

[Anonymous W...:]

Sure not sticking your neck out with a meager $200.00. That's okay, we like uphill surprises due to lowered expectations. Once we break the psyhcological barrier of $200, we''ll be flying quickly. Apple is so far overdue for a breakout. Remember what happened when we broke the $100 price barrier ? We soared to $120, $150, $160 in short order.

2008 Aug 21 05:19 PM

[Urbane Gori...:]

Just using Makie's big purple crayon (crayons work off the tops as well as bottoms) suggests that AAPL will hit $220 by Xmas.... I'm no Macfanatic ...(I'd never buy one... ) but unless AAPL screws up, I see it there....

jegan ;-)

2008 Aug 22 02:35 PM