PJ: masses of iPods will trigger Mac market share growth

Research firm PiperJaffray said Wednesday that it believes Apple will gain share in the personal computer market over the next 2-3 years due to the iPod "halo effect," security/performance issues associated with Windows-based PCs, and the company's ability to drive innovation with high-quality, realistically priced products.

In a research note sent to clients, Senior Research Analyst, Gene Munster, told investors to keep in mind that minimal upside to Mac market share estimates could have a significant impact on Apple's overall results. His firm currently estimates Mac unit market share at 2.0% for the 2004 calendar year, moving up 0.3 percentage points to 2.3% in 2006. But the analyst said these estimates will prove to be conservative.

"It is difficult to anticipate the pace at which Apple can gain share in the personal computer market," Munster wrote in the report. He recently formulated a sensitivity analysis that looked at the impact to Apple's numbers based on various levels of PC market share, finding that minimal upside to current market-share estimates would have a significant impact on Apple's overall numbers. Specifically, the analyst believes that if Apple could grow its market share from 2.0% in 2004 to 3.5% in 2006, it would add 30 cents (or 25%) to the firm's earnings-per-share (EPS) estimates. Likewise, if the Mac maker could achieve a 4.0% share of the PC market in 2006, it would add approximately 42 cents (or 35%).

Taking a step back, and looking at the bigger picture, Munster believes Wall Street continues to place too much emphasis on quarterly iPod unit numbers. "While clearly Apple's domination in digital music is a critical piece to the story, we do not believe that iPod is the only potential growth avenue for the company," the analyst said. He believes that with approximately 30 million units shipped by the end of 2005, the iPod will act as a foundation for growth that will help drive Apple's Mac market share upwards. "In our view, 500k more or less iPods in any given quarter will be inconsequential in the context of Apple's long-term overall business."

Munster said his firm expects the massive numbers of iPods that will populate the market over the next year or two to trigger interest some of Apple's other products, like iBooks and PowerBooks. "We believe that carry-over to other segments of Apple's business will be material," the analyst wrote.

PiperJaffray maintained its 'outperform' rating on Apple with a price target of $50 a share.