Analysis: Apple's musical income pleases analysts

Posted on 24 Jul 2006 at 12:54

One significant statistic was largely missed when Apple announced its financial results last week: income from its music and iPod business now makes up almost half of the company's total revenue.

Despite what some described as disappointing iPod sales of 8.1 million - disappointing enough to reflect a 32 per cent year-on-year increase - sales of the portable music players, added to income from the iTunes Music Store and from sales of iPod accessories totalled almost $2bn, 45 per cent of the quarterly turnover.

Music revenues reflect both the company's continued dominance of the digital market and the health of its overall strategy, which has also resulted in sharply rising Mac sales despite the difficulties associated with the almost-complete transition to a new hardware platform.

Such success persuaded two analysts to upgrade the company's stock and spurred an upturn in the share price, reversing three month's gradual decline.

UBS Investment Research raised its price target for the stock to $80. Analyst Ben Reitzes said that UBS's 'checks in the supply chain' confirm that Apple is right to be excited about 'future iPods in the pipeline'.

Merrill Lynch analyst Richard Farmer today updated his rating on Apple shares from Neutral to Buy, citing several reasons why the stock should appeal to investors, not least the probability - at least in the eyes of analysts - that Apple will introduce an 'iPhone' at some stage.

American Technology Research's Shaw Wu reiterated his belief, shared with Baird Equity Research's Tristan Gerra, that new iPod nano models will not appear in the current quarter. Nonetheless, he said that the iPod business remains healthy and that Mac sales will continue rise.

Citigroup and Needham & Co also provided investors with optimistic outlooks. Needham's Charles Wolf said that he expects Apple to complete its hardware transition at its Worldwide Developers Conference next month by unveiling an Intel-powered successor to the Power Mac desktop computer.

Author: Simon Aughton