Thursday, November 10, 2005

While downgrading the stock from to "hold" from "buy," based on the shares' recent price spike, Charles Wolf, a financial analyst at Needham & Co noticed something else: a measurable surge in purchases of Macs by people who had previously been Windows users.

Wolf has created an interesting forecast model in which he assumes that 11% of Windows users who buy iPods also purchase Macs at the same time or soon afterward. The model also assumes that of these new Mac buyers most stick to the Mac platform and buy a second one when it comes time to upgrade. The conversions resulted in about a half million Macs purchased by Windows users in fiscal 2005. In all, Apple sold 4.5 million Macs in the period, vs. 3.3 million in 2004.

But Wolf built the model a year ago, and now thinks he's underestimated the switching phenomenon.

Windows users are also moving to the Mac in increasing numbers for [a variety of] reasons. Among them: the perception that Mac users suffer less from the daily irritants of viruses, spyware, and worms ... The Apple retail stores also have a big role to play here, Wolf argues.

"The sad reality about the Mac market is that until the fourth quarter of last year, it had been shrinking," Wolf says. "Apple sold a million more Macs during the first three [calendar] quarters than it would have if it were only Mac users buying."

Wolf projects that a growing number of Windows-to-Mac converts will propel Mac shipments from 3.3 million in 2004 to 12.8 million in 2014, by which time Apple's market share will effectively double, to about 4% from 2%