Correct
prediction 
Incorrect
prediction 
Scott Craig of Merrill Lynch
January 15, 2009
Craig maintains his Buy rating and $110 target. Craig cites his “confidence in Apple’s management team” combined with an attractive valuation and advises investors use weakness in the stock to buy.
Jeff Fidacaro of Merrill Lynch
May 23, 2008
Since Apple reported its [fiscal Q2] in April, wireless carriers have announced a significant number of agreements. Our updated analysis shows that Apple increased its total addressable handset market by more than 3.5X from 148 million potential subs to 550 million (including only countries where carriers have announced agreements).”
AAPL price target raised to $215 from $186 and maintains Buy rating.
Rich Farmer of Merrill Lynch
September 13, 2006
We think the improvements to the iPod line, though incremental, are enough to keep Apple's devices ahead of competitors in feature-adjusted price/performance in the intermediate term. Apple did not announce a full-screen touchless interface iPod, nor WiFi support for iPods, which may be disappointing to some investors with more aggressive expectations, though we expect these innovations to emerge in coming quarters."
Farmer expects Apple to release a phone in the second half of 2007:
If Apple were to achieve mobile phone share equal to its PC share, it could eventually add more than $0.90 to the run-rate of consensus estimates of approximately $3.09 in [fiscal year] 2008. In the long run we see fewer structural constraints on share gains in mobile devices (including phones) than exist for Apple versus Windows in the PC market."
August 16, 2006
We believe grants to more than one executive have been discovered to be irregular; however, no executives have yet been specified by Apple beyond the previous identification of one grant to Steve Jobs which was later cancelled in conjunction with a valuation process that converted all his option holdings to restricted stock.
It is not clear whether the measurements applied in that valuation process effectively eliminated the mismeasurement of the value of the original grant that is now being scrutinized or if some mismeasurement persisted to influence the translation to restricted stock."
July 20, 2006
Our sense has been that potential Apple shareholders were understandably hesitant to buy stock with the stock option timing investigation seemingly open ended. Although there is not yet definitive conclusion to the investigation and we offer no legal opinion on the substance of irregularities, we think the statement [...] by Apple management (that financial restatement is not anticipated) suggests risk is lower.
The fact that management publicly alluded to [the iPod phone] (albeit indirectly) on the conference call reinforces the possibility that its introduction could be near enough to influence consensus estimates within the next 12 months.
Cracking the phone business won’t be simple given the complexity of the business model and ecosystem but we see iTunes as a key asset that can create differentiation for consumers as phones and other mobile media devices (like iPods) converge over time."
April 14, 2006
Farmer says Boot Camp should help sales of Macs in the long-term:
That said, we do expect some incremental Mac buyers and are raising our fiscal year 2007 estimate of Mac revenue share of the global PC market by 0.25 percent from 3.45 percent to 3.7 percent."
April 6, 2006
The boot camp capability cannot be a negative, but the question is how much of an incremental impact it could have. We believe the incremental cost for an average user to run Windows XP on an Intel-based Mac is between $199-299 (XP home vs. professional).
Apple's total addresable market (TAM) should increase, though we are not yet convinced it will increase by an amount sufficient to dramatically change earnings power. Our model suggests that for every point of PC market share gained, Apple generates more than $2 billion in incremental revenue and $0.42 net operating profit after tax per share, including attached peripherals."
March 1, 2006
Regarding Apple's special media event held on February 28:
The new Mac mini is an incremental step in the ongoing Intel transition. Though the long run prospects for Apple share gains on the Intel platform are likely to be promising, we continue to be concerned about brand risk from potential glitches in the Intel transition as well as delayed availability of native software (Adobe, Microsoft)."
Regarding Apple's iPod hi-fi announcement:
We wonder if the announcements were substantial enough to merit an invitational media event and suspect Apple needs to be judicious if it expects to continue to convert journalists into marketing instruments with its aura of secrecy.
In the long run, however, by competing with its ecosystem partners with increasingly aggressive moves into categories such as speakers and the implementation of an iPod connector license 'tax', Apple risks alienating its ecosystem and creating a margin umbrella that is ripe for disruption from other platforms over time, in our view."
Comparing the iPod hi-fi to the $299 Bose SoundDock:
For an extra $50 the iPod Hi-Fi product offers battery power capability for music on the go and audio inputs which allow for streaming music if used with the optional Airport Express. The relative quality of audio between the iPod Hi-Fi and the Bose SoundDock is not clear to us.
Sell through will be an important test of the Apple brand. Initial blog activity (an admittedly unscientific measure of customer sentiment) reflected some skepticism."
September 28, 2005
Farmer believes Apple's revenue growth will begin to slow within the next 1 to 3 fiscal quarters:
We believe iPod penetration into the consumer PC installed base can go higher than the current estimated 16% but worry the stock appears to be pricing in penetration closer to 40% around 2007.
When everyone knows everything is going right for a company, sentiment is hard to improve."
Analysis by Steve Milunovich of Merrill Lynch
May 23, 2005
Regarding a Wall Street Journal report about an Apple / Intel partnership to put Intel processors in its Mac products:
What is the benefit to Apple and consumers? One might be in notebooks, where Apple has said that heat dissipation makes it difficult to put a G5 into a laptop. Still, we’d be surprised to see a wholesale switchover to Intel processors with Mac momentum finally kicking in."
Regarding slow sales of the Mac mini at Best Buy:
Store managers told us that PC users are reluctant to make the switch to Mac and are opting for low cost PCs like eMachines. Some store associates said they are at a disadvantage with Macs because Best Buys don’t carry software for Apple."
May 13, 2005
Milunovich believes Apple could debut an iTunes subscription model later this year if iTunes revenue decreases as a result of competition from Yahoo! Music and similar subscription services. iTunes still leads the legal downloadable digital music market with a 70% share. Subscription services account for 15%.
Regarding comments made by Bill Gates that mobile phones will eventually replace the iPod as the primary device for listening to music:
Industry observer Robert Cringely examined the new Tiger OS and found unused icons and support of the H.264 codec that hint at video capability on the iPod and an iTunes video store. Cringely also believes Tiger may have support for competing music formats, indicating that if iPod margins get squeezed Apple might license its software and switch to software-driven profits. That’s more of a stretch though Apple does appear to have learned from past mistakes.
Although we think the iPod franchise is safe for at least the next year, the driver of the stock increasingly will be Mac sales. Management sees more evidence of the halo effect. We model a conservative 15-20% sustainable growth rate for Mac revenue. "
May 4, 2005
Milunovich says Apple will be releasing ad spots that focus on Macs.
Regarding cell phones becoming the primary music players:
Management argued that iPod will remain the best way to manage and listen to music with MP3 capability in handsets more complementary than a replacement. The negatives of music on a handset include a worse user interface and limited battery life."
Apple CFO Peter Oppenheimer “doesn’t foresee problems working with carriers."
Regarding a wireless video iPod in time for the holidays:
Our guess is that iPod will run short video clips, such as Britney Spears gyrating while 'Toxic' plays."
May 2, 2005
The Mac installed based in 2003 was approximately 10 million systems compared to 14 million units today. During the first quarter of its release, 4.7% of Mac users upgraded to Panther. If we assume the same conversion rate and an installed base that is 40% larger, Tiger could pull in about $84 million during its first quarter of release. If this conversion rate increases by 9 basis points, Tiger could pull in about $100 million during its first quarter."
April 27, 2005
The Power Mac G5 constituted almost 22% of Apple’s computer shipments in fiscal 2004. We suspect this share could decline through 2005 as the iMac G5 and Mac mini are directed to the casual user whereas the Power Mac is better suited for professionals.
The stock broke its 50-day moving average, which caused short-term underperformance. But in a growth sector lacking growth, we think investors should be attracted to Apple."
April 14, 2005
We figured Apple could report up to $0.30 EPS best case yet it hit $0.34. There was 6-7 cents of unlikely-to-recur margin benefit in a high gross margin and depressed R&D.
iPod and now Mac success has been underestimated by the market. Now investors need to stand back and consider whether Apple has created a pattern of introducing creative products to a consumer hungry for easy-to-use technology.
But in a growth sector lacking growth, we think investors will be attracted to Apple. Valuation is attractive, in our view, with the stock at 27X our new fiscal 2006 estimate."
April 4, 2005
It appears that Best Buy is near ready to sell the Mac Mini. [...] Last week one Best Buy showed us Mac mini accessories; Mac minis are coming later.
Buyers would not be pleased if they had to plunk down an extra $129 [for Tiger] after their $499 Mac mini purchase.
Although we see plenty of anecdotal evidence of Mac sales benefiting from iPod success, the numbers will tell the tale."
Regarding less customer foot traffic at Apple retail stores:
For the first time we can recall since the iPod craze kicked off, store employees outnumbered customers and there was less than an hour wait for the genius bar at some of the stores we visited.
Beyond making near-term estimates, Apple must show it can build a sustainable consumer franchise. All the speculation about potential products [...] sets a high bar, but owning Apple is like having a call option on Steve Jobs' inventiveness."
March 8, 2005
We are not big believers in the subscription model where consumers pay indefinitely to listen to their favorite songs. If we're wrong, Apple can establish a subscription service with few barriers to entry.
Record label executives we spoke with believe the market could be bimodal with the majority people choosing to purchase and a niche for subscription services."
February 15, 2005
Why did Steve Jobs say that Apple and Sony could possibly work together on computers and music? We think Apple could introduce products based on the IBM/Sony/Toshiba Cell processor."
Milunovich believes an Apple/Sony partnership could produce a iMovies store similar to iTunes with Sony and Pixar content encoded in h.266. Also possible are an Apple workstation using the Cell processor or a networkable TV/computer hybrid:
Our thoughts represent logical conjecture and are not based on knowledge of Apple’s development plans. Such offerings, however, would put Apple at the heart of the HD and digital consumer revolution and provide grist for further earnings increases and stock price appreciation.
Alternatively, there should be an increasing real option value embedded in the stock as Apple leverages iPod success into new product lines."
January 28, 2005
The new Mac Mini has moved the price point down to $499. We believe a limited roll out to select Best Buy stores is logical. Because showing how the Mac Mini connects to peripherals is so important, either Apple-badged or knowledgeable Best Buy reps must be involved."
January 19, 2005
Regarding Apple's new iPod shuffle line:
Our tests show the key is to use AAC compression in combination with either USB 2.0 or Firewire 400. In typical usage, iPod shuffle download times should run 6 minutes (USB 2.0) to 18 minutes (USB 1.1). The worst case iPod shuffle scenario (using AIFF over USB 1.1) ran over 200 minutes on a low-end machine due to conversion time but only 19 minutes on a high-end machine.
New-to-iPod users tell us the price points ($99 and $149) and ease of use are attractive."
January 12, 2005
We believe the Mac mini will sell well to both PC switchers and Mac lovers wanting to put iTunes, iPhoto, and iVideo into entertainment room. The lower price point could entice PC owners to consider the Mac, particularly those with iPods."
Regarding the iPod shuffle's entry into the flash-based MP3 market:
If Apple hits 5% share this quarter, that could be 300,000 units. If it takes off, the number could be much higher, possibly passing the 1 million mark.
The new Mac mini should act as a bridge to the iPod in the living room and the basis for an entertainment server."
Regarding the Macworld Expo:
We had trouble navigating the showroom floor as the Mac faithful mingled with the press and investors. The show had a festive atmosphere with attendees jumping at products from QLogic SAN switches to Mercedes iPod attachments to video professional editing systems."
January 3, 2005
Regarding an iMac without an LCD (headless iMac):
Why require a PC owner to buy a new monitor to get a Mac? Selling just the system unit would cut significantly the cost to switch."
Calling the Airport Express as Apple's first step towards a digital living room, a display-less iMac would be the second step:
Apple needs to build a strong digital consumer franchise based on more than iPod but using iPod as the lever.
Apple's earnings growth should be faster than Dell's."
December 23, 2004
We expect a strong iMac season to be followed by share gain in 2005.
We estimate that drive production for iPod in the quarter was about 4.2 million, which was augmented by 1.4 million drives in inventory.
At the new store in London there was a line of 110 people waiting to pay last Saturday. The Sony store nearby was relatively empty."
November 29, 2004
Regarding rumors that Apple will announce a flash-based iPod at Macworld Expo:
The flash MP3 market is 5x the size of the hard disk market in units and about 2x in revenue. It is also fragmented with the leader, Samsung, at only an 8% share. Based on availability of a flash iPod sometime in the first quarter, we are raising our fiscal 2005 estimate from 10.7 million units to 12.9 million."
Apple has sold 1 million more iPods than Sony did with the Walkmen in the first 2.5 years on the market:
iPods are being adopted faster than Sony Walkmans were back in the early 1980s."
Milunovich believes Apple will release a 200GB entertainment server
which would compete with multimedia PCs and possibly game consoles to manage family entertainment."
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