Apple Computer plans to introduce two iPod-based cell phone models in the first quarter of 2007 that it will initially manufacture in limited quantities, says one analyst.
The analyst, who remained mum on his sources, said at least one of the models will include WiFi wireless capabilities.
"Although these phones represent significant upside earnings potential for the company, there are some concerns regarding market acceptance and battery life, given the number of functions included in the phones," he wrote. "Our checks indicate that Apple will produce these phones in limited quantities initially as a market test vehicle."
For Apple's fourth fiscal quarter ended September, Tortora expects the Cupertino, Calif.-based company to post some upside to street estimates, driven primarily by Mac sales strength and favorable component cost declines. He's modeling revenue of $4.8 billion and earnings-per-share of $0.55, ahead of consensus estimates of $4.7 billion and $0.51.
"While we expect Mac momentum to continue in the [December quarter] (forecasting 1.9 million units), we are more cautious on the outlook for iPod sales and on Appleâs overall margin prospects," the analyst wrote.
While Tortora said checks indicate Apple is preparing its ODM partners for production orders of as many as 21 million iPod units during the December holiday quarter, he said other checks suggest that iPod unit shipments will come in closer to 16 million units for the quarter.
"Moreover, while our checks indicate that production of Apple's new wide screen video iPod will begin in the [December quarter], we do not expect the product to be released until early next year," he continued. "All told, we would not be surprised to see Apple scale down ODM production plans as the quarter moves on, and think that iPod sales could fall short of investor expectations."
Tortora, who maintains a Neutral rating and $74 price target on shares of Apple, recommended that investors remain on the sidelines until he gets "better visibility into the competitive dynamics of the media player space" and its new product ramps.