"We continue to be pleasantly surprised by our checks which indicate that there has been solid reception of the new Intel-based Mac minis," analyst Ben Reitzes and his team of associate analysts told clients on Monday. "The new Mac Minis appear to be off to a stronger than expected start as our checks continue to indicate units are being purchased both as media centers and low-cost entry-level Mac options."
The strong Mac mini sales are not limited to just Apple's retail stores, the analyst noted. He said visits to CompUSA retail stores also turned up evidence of "relatively solid demand" for the petite computers.
"While concerns regarding Mac sales were high going into Apples fiscal second quarter (ended March) due to the Intel transition, Apple sold about 1.1 million Macs in [in that time] (compared to our estimate for 979,000) representing about 4 percent growth year-over-year and a sequential decline of only 11 percent," Reitzes wrote. "With demand for Intel-based systems realizing a full quarter of shipments in fiscal third quarter, we believe momentum in Mac sales should continue."
Some of the new Mac models the analyst believes will continue to drive momentum are Apple's recently released 17-inch MacBook Pro professional notebook and the soon-to-be-unveiled 13-inch MacBook consumer portables.
"We believe that new MacBooks could be very popular for the back-to-school season and expect these units to be on display when Apple opens its latest flagship store at the GM Builiding in Midtown Manhattan this month," Reitzes wrote. "Our research indicates the opening could take place with some new products or promotions on or around May 19th with Steve Jobs in attendance."
For Apple's current, third quarter ending June, the analyst is estimating year-over-year Mac unit growth of about 5 percent (or 12 percent sequentially) to 1.2 million units. By the end of the fiscal year in September, he sees 9 percent overall growth to 5 million units.
Meanwhile, Reitzes said monthly store visits and recent surveys indicate iPod demand remains healthy, but with similar seasonality to Apple's first fiscal quarter of the year. In his research note, he said checks indicated that all stores (both Apple and non-Apple locations) were fully stocked with all iPod models, with store representatives continuing to indicate that iPods remain the top digital music player of choice for consumers.
"However, our checks indicate that the overall MP3 market may still be decelerating a bit from year-end, as store representatives indicated that demand for all MP3 players remain more subdued, with plenty of inventory from a number of vendors," the analyst wrote. "We believe our checks back recent weaker than expected sales for iPods in Apples recently reported fiscal second quarter. Despite the possibility of a slowing MP3 market, we continue to believe sales of video iPods are relatively solid, with many store managers indicating that sales of video iPods may be even stronger than that of nanos."
According to Reitzes, Apple next quarter will introduce new iPods that will help the company maintain its success in the digital music player space and help drive momentum through the end of the year. He predicts the video iPod will move from 30GB/60GB to 40GB/80GB by the fall with a larger screen. In regards to the nano, he sees Apple introducing 6GB and 8GB configurations by the end of 2006, with lower NAND flash prices providing an opportunity for more attractive price points.
"In the meantime, we wouldnt be surprised to see Apple cut prices for iPods (especially nanos) near-term to help stimulate demand into new product launches during the weaker summer months," the analyst told clients. "In terms of features, we expect nanos to get a re-design with better clickwheels, more durable faces and perhaps built-in FM radios for some models (radios could also be available for the higher-end HDD-based iPods)."
For Apple's current, third quarter, Reitzes is estimating iPod unit shipments of 8.4 million, reflecting year-over-year growth of 36 percent (or a decrease of 2 percent sequentially). Factoring in lower average selling prices as a result of a full quarter of shuffle price reductions and the 1GB nano reductions, the analyst forecasts revenue growth to come in at 46 percent year-over-year to $1.6 billion.
"For fiscal year 2006, we forecast unit iPod unit sales of 40.9 million (+82 percent growth) reflecting solid
demand from new products and strong holiday sales," he wrote. "We continue to believe that Apple is working on a new HDD-based video device that looks like a video iPod with a much larger color screen, but are not certain whether it will be ready in time for the holiday season."
UBS Investement Research maintains a Buy rating on shares of Apple Computer with a price target of $95.