Apple to refocus on consumers post Labor Day - Needham

"Apple got through another quarter of its transition to the Intel processor family," analyst Charles Wolf wrote in a research note to clients. "We believe the PowerMac, the only model not running on Intel, will receive its Intel upgrade at the Worldwide Developers Conference on August 7th."

Wolf said the most "stunning" news to come out of Apple's last quarter results were the shipments of nearly 800,000 notebooks, a 61 percent increase despite that the new MacBook was introduced halfway through the quarter. "In our opinion it's the best Mac yet in terms of price/performance," he said.

According to Wolf, Apple is likely to recommence its consumer-oriented product introductions after Labor Day (September 4th), which should include a new higher-capacity iPod nano and possibly "an all-new iPod."

"There promises to be even more come 2007 if the cryptic remarks of Peter Oppenheimer, Apple's CFO, come to pass," he wrote.

Following Apple's third quarter earnings report, Wolf raised his fiscal 2006 earnings-per-share (EPS) estimates from $1.95 to $2.15 and his 2007 estimates from $2.45 to $2.50.

"In our opinion, the tendency of investors to think linearly in an inherently non-linear world explains much of the decline in Apple’s share price this year," he said. "Our 2004 analysis indicated that iPod shipment growth would slow by 2005. But it should remain in a solid double-digit range over the next several years."

Wolf continues to rate shares of Apple a Buy with a price target of $90. He believes it's "ridiculous" to assume the notion that everyone who wants an iPod has one.

"We estimate that between 15 percent and 20 percent of Americans own an iPod or another portable music player," he said. "Our model indicates that steady state penetration rate could reach 50 percent by 2010."

Similarly, Wolf believes the popular notion that cell phones are going to take over the music player market is "equally ridiculous." Certainly an increasing number of cell phones will include a music player, he said, "but the love affair with convergence is way over blown, in our opinion."