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Apple may host Leopard event, intro ultra-portables, bring iPhone to Best Buy

Apple Inc. is likely to hold a media event to launch its upcoming Leopard operating system in the coming months, and may also introduce ultra portables and expand its iPhone distribution to other retailers shortly thereafter, UBS Investment Research said this week.

"We believe Apple is likely to hold another event by April or May to launch Leopard and/or other new Mac products (models with larger displays at least)," analyst Ben Reitzes wrote in a note to clients this week. "We continue to believe Leopard may include several key features not previously previewed revolving around the digital home and telephony, driving demand for new products such as Apple TV and the iPhone."

The analyst said recent retail checks and surveys continue to show solid demand for Apple's Macs, driven primarily by momentum from its compelling notebooks offerings, which should bode well for sales during the three-month period ending March.

"At the Apple store we visited, representatives were wearing T-shirts with the 'Go Beyond Vista' slogan from Apple’s new marketing campaign which we believe highlights how Apple is actively looking to combat the new features of Vista and continue to drive switchers to the Mac platform," the analyst told clients. "Our checks suggest that Mac sales may not be as bad as some feared going into 2Q as demand appears to be holding up into the launch of Leopard."

Reitzes is forecasting for solid demand to continue for Macs through Apple's 2007 fiscal year, stimulated by Adobe's next version of Creative suite, and Leopard, both expected this spring. For the current quarter, he expects year-over-year Mac unit growth of 34 percent (-7 percent quarter-to-quart) to 1.5 million units. His estimates also call for Mac unit growth of 27 percent to 6.7 million units for all of fiscal 2007 and unit growth of 25 percent to 8.4 million units in fiscal 2008.

Looking slightly longer term, the UBS analyst believes Apple may push iPhone technology into other products, including Macs next year and more 'ultra-portable' devices that can bridge the gap between media playing, basic wireless computing needs and even eventually some type of gaming and GPS capabilities.

"We would not be surprised to see a new device this calendar year, featuring touch screen functionality," he wrote. "While the PC market is rather mature with growth expected to be 12 percent in 2007 (driven by growth in emerging markets), the portable segment continues to show strong growth with 28 percent growth expected."

Furthermore, Reitzes said, certain segments such as ultraportable PCs are likely to become a bigger piece of the portable market —given reduced costs by PC OEMs and new market entrants such as Apple. According to data from market research firm IDC, the ultraportable PC market accounted for less than 8 percent of overall notebook shipments in 2005 (about 5 million units worldwide), and remain at about 8 percent of notebook shipments in 2006 (about 6.4 million units), but is expected to spawn more than 20 percent growth over the next few years.

"We believe Apple could expand this market significantly if it chose to enter it over the next 2 years," the analyst explained. "We believe Apple could see much better growth and drive this category if it stripped down features, optimized the device for media playing and web surfing and used its engineering and scale to drive prices down toward the $500-$600 level."

Meanwhile, Reitzes said checks with Apple and non-Apple stores continue to indicate that the new iPod line-up is experiencing stable but seasonal demand led by the new colored iPod shuffles.

"Since it began shipping on November 3, checks for the iPod shuffle have been extremely positive, with Apple (and non-Apple) store representatives stating demand has been very solid," he wrote. "While we are not expecting any upside to our iPod estimates in fiscal 2Q07, we believe the company will continue to benefit from sales of recently introduced products —albeit with significant seasonality."

On a final note, the UBS hardware analyst suggested that Apple may eventually expanded its distribution of the iPhone beyond Apple and Cingular stores to include other retailers over time.

"While retail store representatives did not confirm or deny expanded relationships, it is important to point out that Best Buy is a major Cingular reseller," he wrote. "We believe that relationship could eventually provide a window for the iPhone to be available through Best Buy at some point."