Thursday, January 17, 2008

Buying opportunity seen in Apple; analysts weigh in on announcements, iPhone

Although Apple Corp. shares have declined substantially since announcing new product and service offerings at the MacWorld Expo and Conference on Tuesday, the freefall has created a prime buying opportunity for investors as the company heads into next week’s earnings release, according to several analysts.

While there were no iPhone-like blockbuster announcements made by chief executive Steve Jobs, the company’s successful product cycle and upcoming pipeline are enough to convince analysts that Apple is on strong financial footing.

“While we expect many of our companies to report solid December quarter results, the broad-based strength of upside from Apple should enable it to stand out,” Goldman Sachs analyst David Bailey said in a note to clients. “At the same time, Apple’s multiple product cycles, something that is sorely missing among our enterprise facing companies, should support the stock even as we enter a softer seasonal period.”

Another encouraging sign was Mr. Jobs’ announcement that Apple has moved 4 million iPhones off store shelves, including about 2.5 million in the most recent quarter that beat consensus estimates of 2.2 million, said RBC Capital Markets analyst Mike Abramsky.

Mr. Abramsky said that Apple now is second to Research In Motion Ltd. in the smartphone market with 19% and its growth is an affirmation that the “iPhone experience taps into pent up consumer need for mobile content.”

Finally, the introduction of a movie rental service is a step in the right direction, said Citigroup analyst Richard Gardner, but the rental price is more expensive than Netflix or Blockbuster and would be available online 30 days after being available on their competitors.

“We clearly view the new iTunes movie rental service as a long-term positive for Apple because we believe the availability of more and better video content will drive iPod sales and upgrades over time,” said Mr. Gardner. “However, we do not expect iTunes movie rentals to contribute significantly to revenue or, more importantly, operating income during 2008. In fact, we would not be surprised if Apple agreed to give movie studios a larger cut of rental profits than they are accustomed to receiving in exchange for more content and/or quicker access to content.”

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