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Monday, July 31, 2006

Oops On Apple


Apple's shares took a nice tick up on an upgrade form Bank of America. The analyst who covers the computer and iPod wonder increased his price target from $68 to $79, So, the stock has to move up 16% from where it trades now to hit the B of A target. The reasons for the upgrade are improved sales of the iPod Nano and Mac laptops later in the year.

Where did B of A find a crystal ball?

Maybe a new iPod will sell better, but, maybe it won't. Mac laptops are nifty computers, but Dell, Gateway, and HP are cutting prices to gain share as the big PC manufacturers bleed margin. Intel has dropped Pentium prices as much as 61% to make way for its new chip. That means that PC pricing could be even lower in the second half of the year.

Another interesting piece of news is that Verizon will introduce a cell phone that doubles as an MP3 player. Of course, Microsoft is entering the iPod look-alike market as well. Investor should expect big marketing pushes from both Verizon and Microsoft in a market where Apple had very little competition for the iPod a year ago.

According to Apple's 10-Q for the period ending April 30, sales of portables/laptops were up only 8% from the same quarter last year. This was a sharp slowdown from the immediately previous quarter growth rate. And, iPod unit sales are no longer growing at a torrid pace, hitting 8.5 million units in the last reported quarter.

Will unit sales of iPods and portables jump up as 2006 closes. Maybe. But, the competition in both markets will provide a stiff headwind.

The B of A crystal ball my be right, but, it may not be.

With Apple's stock up almost 30% since mid-July, buying in now could be an expensive gamble.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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