Merrill Lynch: Strong Demand for iPod shuffle, Could Outstrip Supply

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A href=”http://www.ml.com”>Merrill Lynch analyst Steven Milunovich believes there will be strong demand for Appleis new iPod shuffle, and that just like the iPod mini, demand will outstrip supply, a chronic issue for Apple. In a research note for clients obtained by The Mac Observer, Mr. Milunovich said that new-to-iPod users are attracted to both the ease-of-use and the low price point of the digital media player.


"Our experiences with the shuffle suggests likely strong demand from novices and new-to-iPod users," wrote Mr. Milunovich. "Existing iPod owners may prefer the larger capacity and display of existing iPods, which makes for good market segmentation on Appleis part. New-to-iPod users tell us the price points ($99 and $149) and ease of use are attractive."


The report also noted that the shuffleis manufacturer is making between 1.2-1.5 million of the devices. If sales soak up that kind of capacity, it would mean that demand for the new players is even higher than the half a million to one million units that Appleis other iPod models will sell during the quarter.


"Every extra 500,000 units could add $62.5mm to revenue and a penny to EPS," wrote Mr. Milunovich.


Other than the standard risk warning of poor execution that is standard fare with such research notes, Mr. Milunovichis one "area of concern" is the slow download speeds experienced through the iPod shuffleis USB connection. The concern is that some users could be frustrated by slow download speeds if they are regularly changing out the playlist. Mr. Milunovich did not quantify this concern.


Merrill Lynch hash reiterated its "Buy" rating for Appleis stock, as well as the $85 target price for the stock.


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