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UBS Investment Research today released a report that speculates on the direction Apple (Nasdaq: AAPL) might take in the future, including the release of a digital media hub, multimedia-capable iPods and even an iTunes Music Store-like movie download service.
Analysts Jeff Brickman and Ben Reitzes, who authored the research note, also estimated that the company will report earnings of 23 cents per share during its quarterly conference call with analysts on April 13. They expect Apple's revenue to hit the US$3.2 billion mark, which would be a 67 percent year-over-year increase from the same quarter in 2004.
Their target price for the company's stock is $50 per share.
IPod Photo To Become Standard
The UBS report, obtained by MacNewsWorld, opens with a section titled "Innovation Set to Continue." Under that proclamation, Brickman and Reitzes analyze media speculation and news from their own sources, concluding that the iPod photo's features will likely become standard in all hard drive-based iPods "as availability for color screens improves along with battery life and overall prices fall."
They see an expanded iPod photo line debuting in time for holiday shopping this fall and note: "We would not rule out flash-based products related to this emerging category as well."
The report says, "Despite comments from Steve Jobs to the contrary, we wouldn't be surprised if Apple eventually launched some form of a multimedia iPod." They see such a device launched in 2006, with a color screen similar to the one found on Sony's (NYSE: SNE) hand-held PSP game player, no less than 60 GB of storage and a price point below $500.
However, Simon Yates, an analyst with Forrester Research, told MacNewsWorld that he strongly disagreed with such speculation. "There's no way you can turn the iPod's form factor into one that shows video," he said. "You can barely show photos on it.
"If Apple fiddles with the iPod's form factor, they'll dilute what it has become. If they're smart, they'll move into video with another device."
ITunes as a 'Trojan Horse'
The iPod's seamless integration with iTunes leads UBS' Brickman and Reitzes to proclaim the music software "a 'Trojan Horse' into Windows-based PC's, expanding Apple's appeal further and creating more switchers over time."
In addition, they see a multimedia iPod being used to "launch an iTunes-like service for video or movie content within a year or two." Such a service would enable users to manage, purchase and download video content for use on the device, despite Apple CEO Jobs' public denial that the company wants to enter that space.
Forrester's Yates saw the feasibility of such a venture, but cautioned that "Apple has no device to put video on. It's not like a third party will build a device that works with iTunes, because Apple won't allow it."
Of course, astute readers will remember that Jobs also said he didn't want to enter the competitive world of $500 computers, but that didn't stop Apple from releasing the Mac mini in January. Brickman and Reitzes note that "the company continues to benefit from a solid reception" of the budget-priced computer.
The analysts also address Motorola's (NYSE: MMI) oft-delayed but still forthcoming iTunes-compatible cell phone, which they think "represents an exciting opportunity for Apple in terms of driving additional songs through iTunes." However, they note that the iPod will see increased competition from upcoming hard drive-equipped mobile phones, which leads them to believe that "Apple is trying to figure out how to make a wireless iPod (perhaps using WiFi) to download music on the fly."
Yates agreed: "A wireless iPod is a no-brainer. I want to walk into a room and have the iPod sync with the computer without having to hook it up."
'Tivo-Like' Digital Media Server
The digital media hub, which has been the subject of endless speculation on the Internet, is the most nebulous of the ideas proposed by Brickman and Reitzes. They view it as a device that "acts as a server and storage unit for music, movies, photos and other types of home entertainment" and think Apple will introduce it at the end of 2005 or early in 2006.
They call the device "TiVo-like" and think that it "could be utilized to produce many of the same features that are seen today by competing services," but the analysts shy away from speculating on specific features.
Brickman and Reitzes believe, however, that it "would fit seamlessly into Apple's strategic direction and focus on becoming the premier vendor for digital entertainment."
Yates also agreed with UBS on this point, noting: "Microsoft tried to do that with the Media Center PC, but sales haven't been brisk. It's not that the idea isn't great. Consumers don't understand why they want it when TiVo (Nasdaq: TIVO) is only $99.
"If TiVo gets out of the hardware business, Apple could step in, but they'll likely want to build their own device rather than license TiVo's."
Tiger to Push Hardware Upgrades
On the software front, the analysts see the release of Apple's next-generation operating system, Mac OS X v10.4 "Tiger," happening "as early as this month." They think it's the upgrade that "may push many over the edge" and prompt the estimated 10 million Mac users still not running OS X to upgrade their computers.
That, combined with the previously addressed factors, will see Apple's worldwide computer market share climb from its current 2 percent during the coming months, "since its 'mind share' of the PC market seems much higher now that the iPod has revitalized the brand and its product line is refreshed."
Yates tentatively agreed with that assessment. "The problem with Apple's computers is price. Approximately 65 percent of consumers want to spend less than $1,200 for their next computer. The Mac mini helps, but Dell (Nasdaq: DELL) will always beat them on price."
Brickman and Reitzes were unavailable for comment. Apple does not respond to speculation regarding future products.
