Barron's
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Apple's Latest Boost Coming From Its Core: Computers
APPLE COMPUTER WENT BACK TO SCHOOL, and now it is getting ready to deck the halls for the holidays.
Apple shares (ticker: AAPL) have vaulted more than 50%, to around 77, since we ran a bullish cover story on the computer maker ("Mac Attack," July 17). The stock was boosted by strong July-quarter earnings that were bolstered by better-than-expected sales of the iconic iPod portable music player.
This nice boost from iPod partially obscured another positive trend. Apple stock has begun a slow transition from being an iPod-driven story to being revitalized by the company's core products: computers for the home, school and graphics-related business segments.
There is evidence that this transition is under way, even if only in the early stages. That leads us to conclude there is still room for the shares to run up a bit more before Christmas.
While we won't know for certain until quarterly results are posted on Oct. 18, it looks like late-summer computer sales were very solid, says hardware analyst Charlie Wolf of Needham & Co.
"Based on what I've been hearing, my estimate of Mac shipments is most likely low for September," Wolf tells Barron's. That forecast called for 1.5 million Macs to be sold in the September quarter, versus 1.2 million in the corresponding 2005 period.
Our bullish call was based largely on the promise of robust sales for revamped Macintosh desktops and notebooks, which have been priced more competitively than ever and now can easily run Windows, as well as Apple's own operating systems, owing to the company's pragmatic switch to Intel processors.
Wolf's thesis is that the ability to directly use Windows will boost the switch rate to Macs from Windows-based PCs. Previously, he had assumed that the switch rate wouldn't jump until the new Leopard operating system (OS 10.5) was shipped, together with a commercial version of Boot Camp (the software that allows Windows to run on non-Intel-powered Macs), which now seems unlikely until the first half of 2007.
However, "Apple has already begun to market the Mac's dual-operating-system capability, even though Boot Camp is still in beta tests," says Wolf, who has a target price of 90 on the stock.
Mac sales -- especially of notebooks used by students -- appear to have been robust in the quarter ended in September. Apple promoted MacBook sales by throwing free iPods into the deal. Ironically, the recent success of the MacBook probably has more to do with the price cuts and the machines' appealing design than with the ability to run Windows.
Once Boot Camp arrives, however, Mac sales will gain even more momentum, Wolf asserts.
Skeptics are concerned that recent updates to the iPod line aren't dramatic enough to offset the imminent cooling of the iPod craze -- not to mention the impact of Zune, an MP3 player that is being introduced by Microsoft (MSFT).
Even if they're right, the iPod won't be as crucial to Apple's health as it has been over the past few years. In short, revived Mac sales should deliver an early Christmas present to Apple, regardless of what Bill Gates and his elves do. |
