Tuesday, August 29, 2006

Calls of Note Part 1

- Bear Stearns comments on Apple Computer (NASDAQ:AAPL) saying we are approaching AAPL's expected product launch season. Firm sees 3 key issues regarding new devices: 1) extending AAPL's technological lead, 2) refreshing/upgrading existing users, and 3) expanding the market (i.e., new users). The real key is continuing the "oh wow" factor that has lead to iPod leadership, i.e., they expect to be surprised/impressed. While the main risk always remains on over-anticipation from investors, continued innovation from Apple should warrant a higher multiple and the firm still views AAPL as a compelling 2H06 play.

Firm sees potential for advances on a number of fronts, but the key for Apple remains continued innovation (new features, capabilities), as they would view mere iPod capacity bumps as disappointing. Firm's expectations for new products include: new iPod shuffles with potential enhancements such as smaller form factor, multiple colors, and a text-based screen, possibly wireless; new iPod nanos with more capacity (4GB/8GB of NAND flash memory), enhanced durability (i.e., more scratch-resistant), multiple colors, and even potential for wireless capabilities; multiple new products that are video-centric, including devices that are handheld-sized (e.g., refresh of 5th-generation iPod), tablet-sized (e.g., a "true " widescreen video iPod), as well as wall-sized for home entertainment (e.g., incorporating iPod technology into an HDTV device to provide a "big iPod " in the living room); video content (in conjunction with new devices), such as an iTunes movie rental service along with deals with major content providers/studios; new Intel-based Mac computers, including new Mac mini with greater media center functionality (e.g., DVR, wireless streaming of video, native iPod dock), new iMac, and a MacBook Pro update with Intel's Core 2 Duo processor (Merom).

Though Apple hasn't sent "teaser " invitations yet for any special event, which it typically sends out a week in advance of the events, the firm expects initial announcements in early September, with more to follow in October, and potentially through Macworld on January 8, 2007.

There are no changes to their EPS ests of $2.16 for FY06, $2.70 for FY07, and $3.15 for FY08. Views the valuation as attractive in front of product catalysts and consumer seasonality. Firm's CY06 target of $88 reflects a P/E of 28x on CY07 oper EPS and adding net cash/sh of ~$12.

Notablecalls: For you Apple fans out there. NOT actionable but good to know category.

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