UPDATE 1-RESEARCH ALERT-Lehman starts IT hardware sector

(Recasts, adds details)

April 22 (Reuters) - Lehman Brothers started coverage of
the IT hardware sector with a "neutral" rating, and said the IT
spending environment will remain challenging.

But the brokerage said that select companies could
outperform. Lehman's top picks in the sector were "overweight"
rated Apple Inc (AAPL.O), Hewlett-Packard (HPQ.N) and IBM
(IBM.N).

"Apple is our top pick with a target of $195 based on our
view that it can benefit from new iPhones and several new
notebook products in the second-half of 2008," Lehman said in a
note.

The brokerage said while IBM had already outperformed this
year, consensus estimates are very conservative.

HP could benefit from cost cutting and a shift toward
higher-margin enterprise products, Lehman said.

Lehman changed its rating on the following companies:

COMPANY RATING

CURRENT PRIOR

Apple Inc (AAPL.O) Overweight Neutral

Dell Inc (DELL.O) Equalweight Neutral

EMC Corp (EMC.N) Equalweight Neutral

Hewlett-Packard Overweight Neutral

Co (HPQ.N)

IBM (IBM.N) Overweight Neutral

Network Appliance Equalweight Neutral

Inc (NTAP.O)

Sun Microsystems Equalweight Neutral

Inc (JAVA.O)
(Reporting by Swagata Gupta in Bangalore; Editing by Pratish
Narayanan)