ZAGG ( Nasdaq - ZAGG ) -- Apple Computer Enters the Device Cover Market

Zagg (ZAGG $8.25) is on track to report excellent on target Q4 results.  Our estimates are unchanged (see below).  Last week Apple Computer released its second generation iPad tablet computer, which ordinarily would have created an additional market opportunity for Zagg.  During its formal presentation Apple featured a specialized cover it had developed for the iPad.  That product gained more publicity than most of the other innovations contained in the iPad.  The immediate impact on Zagg is likely to be negligible, since tablet computers still represent a small fraction of the potential market.  Afficionados also may be able to distinguish between Apple's new cover and the ZaggMate.  The longer term question is whether the hoopla will set off a wave of additional products, laying the groundwork for a more competitive market in the future.  If that happens sales growth could moderate despite the industry's ongoing expansion.  Profit margins could come under greater pressure, as well.  It's premature to throw in the towel on these shares.  Zagg is a well managed company that commands the leading position in the device cover market.  American tax laws and its economic climate aren't especially conducive to business start-ups, either.  Established computer accessory manufacturers could move into the business.  But until some genuine evidence of that emerges our advice is to maintain at least a reduced position in these shares.

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