Analysis: Stars align for Apple at the holidays

SAN FRANCISCO Thu Dec 16, 2010 12:23pm EST

A crew member prepares iPads for sale at the Apple store at the Glendale Galleria in Glendale, California in this December 8, 2010 file photo. REUTERS/Fred Prouser

A crew member prepares iPads for sale at the Apple store at the Glendale Galleria in Glendale, California in this December 8, 2010 file photo.

Credit: Reuters/Fred Prouser

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SAN FRANCISCO (Reuters) - Apple Inc's iPad and bustling retail business have encouraged investors to shrug off the shaky economy and snap up the company's shares as 2010 comes to a close.

Checks by analysts over the past few weeks indicate strong demand for a number of Apple products, which has pushed its shares up as much as 9 percent over the past month.

Wall Street expects the company to post revenue of more than $24 billion in the December quarter, up 50 percent from last year. That would leave Apple trailing only Hewlett-Packard and IBM in sales among U.S. technology companies.

"People want to be involved in Apple shares headed into the year-end," said Gleacher & Co analyst Brian Marshall. "I think that the iPad will definitely be the gift of choice."

December has been a moneymaker for Apple since it launched the iPod nearly a decade ago. The success of the iPhone, introduced in 2007, and resurgent sales of Mac computers have since bolstered its lineup.

And the iPad, launched in April, should add at least $3 billion in sales in the holiday quarter alone, analysts have said.

Starting next year, Apple won't have it so easy, as a slew of new tablet computers hit the market.

After years of torrid growth, and with a fat target on its back for restive rivals, the issue for Apple is valuation. With shares flirting at record-high levels above $320, some investors wonder just how much more Apple can grow, given its already enormous size.

The median price target on the company is $375, according to Thomson Reuters I/B/E/S.

Apple trades at around 17 times forward earnings, far higher than either Dell or HP. But many analysts are also quick to note that it trades closer to 14 times when excluding its $51 billion cash balance.

Gleacher's Marshall is still upbeat on Apple's stock, but points out that "it's not as attractive as it once was."

There is always the threat that Apple's holiday will be hurt if already pinched shoppers simply decide to hold off on purchases to wait for upcoming new products.

Apple is widely expected to launch a iPhone with Verizon Wireless early next year, ending AT&T's exclusive hold on the device in the United States.

And Asian manufacturers that do business with Apple have indicated that Apple is preparing to launch the next-generation iPad next spring.

But analysts, including Brian White from Ticonderoga Securities analyst Brian White, downplayed those risks. White has a $450 price target on Apple, and said the shares still have room to run.

He recently returned from a trip to China, where he said products like the iPhone, the iPad, and the new MacBook Air are in great demand but difficult to find.

"When China sells out, Apple is starving China so the rest of the world can eat. That gives you a very good feel for demand."

TABLETS FOR THE HOLIDAYS

With the introduction of the iPad, the company entered the holiday season with perhaps the hottest gadget of the year. Only Microsoft's Kinect video game system seems to rival it in terms of consumer interest.

Advertisements for the iPad are everywhere, and Oprah Winfey's glowing endorsement of the device -- as part of her "favorite things" bonanza -- gave it an even higher profile.

With many rival tablets yet to hit store shelves, analysts expect Apple to sell 5.5 million to 6 million iPads in the December quarter.

That number still pales in comparison to the iPhone, which should easily top 15 million units.

Apple's chief rival in the smartphone market, Research in Motion Ltd, reports results on Thursday, providing a snapshot of demand. The company is expected to get a boost from its new device, the touchscreen Torch and is expected to provide updates to its plans to release its own iPad-killer, the Playbook.

To watch a preview of RIM's earnings on Reuters Insider, click here: r.reuters.com/xaj52r

Although iPods sell well at the holidays, they are no longer a growth driver. The company has sold nearly 300 million iPods since launch, as the media player became a staple gift.

Retail stores have become key to Apple's holiday success. Last quarter, the company's more than 300 stores around the world saw 74.5 million visitors, as retail revenue rose 75 percent to $3.6 billion.

(Reporting by Gabriel Madway; Editing by Derek Caney)

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