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Bear Stearns ups Apple target to $125, says Palm at risk to iPhone

Apple's new iPhone presents a serious risk to PDA-maker Palm, according to Bear Stears, who on Wednesday raised estimates and increased its price objective on Apple.

"With over 1 billion unit shipments expected to ship in 2007, mobile phones represent a significant growth opportunity for Apple, coupled with video which is also in its early stages and could evolve into a multi-year story," analyst Andy Neff told clients in a research note to clients on Wednesday.

He said Apple is likely to face number of challenges in its new phone initiative —such as entrenched competitors with significant scale and wireless expertise and establishing/maintaining carrier relationships —but believes the device could potentially revolutionize the mobile phone industry in very much the same way the iPod forever altered the landscape of music.

Apple, while introducing iPhone on Tuesday, said it will initially shoot for 1 percent of that global handset market —an approximate 10 million units.

"We believe that iPhone represents a significant risk to Palm given its device-only model with similar average-selling-price to iPhone and its carrier concentration with Cingular," Neff wrote. He also cited Palm's "lack of innovation" as yet another cause for concern.

But contrary to initial market reaction, Blackberry manufacturer Research In Motion Limited (RIMM) may experience minimal impact from Apple's first handset in the near term, the analyst said.

"While iPhone may emerge as a competitive smartphone, we would buy RIMM on weakness given iPhone’s lack of corporate email, price premium vs. RIMM, and sole availability at Cingular and in US," he explained.

Along similar lines, Neff said iPhone could wind up reflecting positively on Synaptics, whose Onyx touch solution may come under high demand as would-be competitors line up in attempts duplicate the user interface experience of the new Apple handset.

Apple iPhone Competitive Landscape

Stacking the iPhone against the competition | Source: Bear Stearns.

The analyst expects Apple will sell around 600,000 units of its initial iPhone handset during the fiscal 2007 year, which ends in September. However, he's modeling for that number to surge to 9.25 million units the following year.

Neff reiterated his Outperform rating on shares of Apple, raising his 12-month price target to $125 from $100.