Merrill Lynch: Tiger to boost PC share; New iMacs, eMacs
May 2, 2005 - 13:16 PDT   Mac OS X v10.4 Tiger should be the first new version of the operating system to help increase Apple's PC market share, according to one Wall Street analyst. Merrill Lynch's Steven Milunovich said in a research note obtained by MacMinute that based on the features of Tiger and the halo effect from the iPod, Apple's PC outlook is "rosier this time." Milunovich estimates that first quarter Tiger sales will be $84 million to $100 million, compared to $60 million for the previous version of Mac OS X, Panther. The analyst also said he expects upgrades to Apple's iMac and eMac lines to soon be released, and that the Mac mini will help the company's desktop share to reach the same level as its portable share.

Milunovich noted that Mac OS X v10.3 Panther, which was released in Fall 2003, provided $60 million in sales during its first quarter of release, but that the Mac installed based in 2003 was approximately 10 million systems compared to 14 million today. He said that during the first quarter of its release, 4.7 percent of Mac users upgraded to Panther. "If we assume the same conversion rate and an installed base that is 40 percent larger, Tiger could pull in about $84 million during its first quarter of release," Milunovich said. "Because of its bigger installed base and retail presence, we suspect Tiger sales could be even larger. If we assume the conversion rate increases by 9 basis points, Tiger could pull in about $100 million in Apple’s F3Q."

Milunovich said he sees Tiger helping Apple gain PC market share. "We expect Mac OS to run over ten million computers in the U.S., grabbing over 4 percent market share in 2005," he said. "Unlike previous Mac OS X upgrades, Tiger should boost Apple hardware sales. Tiger represents the fourth version of Mac OS X. Apple saw its PC unit share decline on average by 3 basis points one quarter after the release of last three Mac OS updates. We believe the halo effect from the iPod craze will reverse this negative trend. We expect Apple to have about 2.5 percent of the worldwide market by the end of 2005, up from 2.1 percent in 1Q/05."

The analyst said Apple will more than likely take advantage of Tiger with hardware upgrades. "We believe upgrades are in the works for Apple's existing iMac and eMac models," Milunovich said. "This comes on the heels of Power Mac model upgrades announced last week ahead of the Tiger release. The shipping times for both iMacs and eMacs have increased from 1-2 days to 5-7 days on Apple’s web site, suggesting an announcement may be coming."

Milunovich also said that the Mac mini could allow Apple's desktop share to catch up to its notebook share. "Apple has experienced tremendous success with its elegant PowerBook and affordable iBook notebooks," he noted. "Apple currently has 3.4 percent of the worldwide notebook market but only 1.7 percent of desktops. We expect new Mac users will decide on lower cost desktops than notebooks as Apple attempts to convert Windows users. The new desktop weapon is the Mac mini, which provides a new low price point for the Mac line."

Milunovich reiterated his "Buy" rating with a price objective of $51 per share.

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