Analysts Still Underestimate Apple

We all read of the headaches home PC users have had with Windows vulnerabilities -- virus infections, critical dll files getting deleted or corrupted, spyware, crashing machines. I suspect that many users would be thrilled to have a low-maintenance, easy-to-use alternative.

A perfect example: Shirley, my 80-year-old mother-in-law, had her PC crash last month. It just won't boot up anymore. It's a few years old, and it's not really worth spending a few hundred bucks to fix. I was considering getting a Dell for her, but for about the same price point, she could get a Mac mini; Shirley already has a mouse, keyboard, printer and monitor. For $499, she can get a fast, reliable machine that would be far easier for her to use. And, with the purchase of a $15 dongle (USB to PS2 Active Y Adapter), her older (non-USB) keyboard and mouse will work just fine.

Before the Apple mini, Needham analyst Charlie Wolf was looking for a 4% switch rate from Windows-using iPod owners. Since the introduction of the new Mini, he's raised that switch rate to 11%. Wolf estimates that Apple can increase its domestic PC market share 100% over five years -- from 2% to 4%. Other people have been less conservative, forecasting (off the record) that Apple market share could actually go much higher and more quickly, too.

I imagine that same sort of discussion is taking place across the country. A replacement cycle of malware-infested Window machines is huge. Capturing even a small percentage of this market by Apple is potentially worth billions of dollars per year in sales; that could lead to lucrative OS upgrades, software sales, even more iPod sales, and purchases from the iTunes Music Store.

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At the time of publication, Ritholtz was long Apple and accounts he manages were long Apple, Dell, and Microsoft, although holdings can change at any time.

Barry Ritholtz is chief market strategist for Maxim Group, where his research and market analysis are used by the firm's portfolio managers and clients in the U.S., Europe and Japan. He also publishes The Big Picture, his macro perspectives on the economy and geopolitics, entertainment and technology industries, and is a member of the board of directors of Burst.com, a streaming media software company. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Ritholtz appreciates your feedback and invites you to send it to [e-mail].