(Adds comments from Global Equities Research, updates share
By Mansi Dutta
May 26 Morgan Stanley upgraded Apple Inc
(AAPL.O) to "overweight," saying the iPhone maker is emerging
as the clear leader in the battle over mobile Internet and will
see iPhone-driven earnings growth over the next two years.
Apple shares rose more than 5 percent to $129.13 in morning
trade on Nasdaq.
"The core of our stock call is that the iPhone's success
and higher margins will begin to mute the fundamental margin
and growth risks in Apple's core Mac/iPod businesses," analyst
Kathryn Huberty wrote in a note to clients.
The analyst, who raised the price target on the stock to
$180 from $105, said the market is underestimating iPhone unit
demand in the second half of 2009 and 2010 which will
accelerate earnings growth, estimate revisions and multiple
Huberty said iPhone will drive about 50 percent of Apple's
earnings per share in 2010, up from 30 percent in 2008.
"We expect a price cut to the current generation iPhone to
drive 50 percent to 100 percent (2 million to 4 million units)
incremental unit demand," Huberty said.
"Our survey data suggests 15 percent plus of the iPhone
installed base typically upgrade to a new phone."
Smartphones are taking increasing share from traditional
handsets and Apple's iPhone currently leads market share of the
Apple has 38 percent of mobile Internet operating system
market share, up from 5 percent a year ago, the analyst said.
However, Global Equities Research analyst Trip Chowdhry
said iPhone will face tough competition from Palm Inc's
PALM.O smartphone Palm Pre when the latter is launched on
Chowdhry has an "equal weight" rating on Apple stock with a
price target of $95.
"Investors should not think the upcoming version of iPhone
3 is going to be as successful as iPhone 2.0 because it will
have solid competition from Palm Pre, developed by ex-Apple
designer Jon Rubinstein," Chowdhry said by phone.
"Palm Pre has a superior operating system than iPhone. It
runs on a better network -- Sprint CDMA -- versus iPhone which
runs on GSM," Chowdhry added.
He said investors should also be very careful about the
fact that about 60 percent of iPhone developers have signed up
for the Palm Pre developer program.
Apple is expected to announce the launch of iPhone 3 on
Apple shares were up $6.17 at $128.67 in morning trade. The
stock has gained more than 65 percent since hitting a 52-week
low in January.
(Editing by Ratul Ray Chaudhuri and Gopakumar Warrier)