analyst Don Young today raised his third quarter and full year estimates for Apple. Young based his analysis on falling component prices.
Young said that Apple’s backlog of demand for flat-panel iMacs “backfired” when component costs rose, thus reducing the company’s gross margins and necessitating a price increase. Fortunately, said Young, component costs are dropping — particularly on memory. This will result in a gross margin benefit for the company of about a half a percentage point to 27 percent.
Young’s estimate for Apple’s third quarter earnings went from 12 cents per share to 14 cents per share. His expectation of Apple’s 2002 earnings rose from 54 center a share to 56 cents a share. Young maintained his fourth-quarter expectation of 20 cents, which already included a gross margin rebound.
Young reiterated a strong buy rating on Apple stock from UBS Warburg. He also said that the investment banking and security firm’s retail channel tracking shows that sales are building for Apple’s iPod, suggesting “a potential upside” to UBS Warburg’s third quarter forecast of 52,000 units.
“We no longer view Apple as in a battle for PC market share — instead we see the platform becoming a premium PC capturing selective PC demand,” said Young.