Apple Courting Core Meltdown

Updated from 1:18 p.m. EDT

The bull case for Apple(AAPL) over the past year has been that booming sales of iPod music players will create a "halo effect" that will lead to higher demand for the company's Macintosh computers.

While Apple has seen an uptick in Macintosh sales in recent quarters, that momentum may be slowed by the recent announcement that it is switching the processor at the heart of its computers from the PowerPC line produced by IBM(IBM) and Freescale Semiconductor (FSL) to chips made by Intel(INTC).

Although Apple offered valid reasons for the switch, it could lead customers to delay computer purchases or choose rival systems based on Microsoft's (MSFT) Windows operating system.

Even with a recent drop, Apple shares -- at 29 times earnings estimates for the current year -- still are trading at a premium to its PC rivals. This implies big growth expectations for the company and particularly its computer business, notes Darren Chervitz, research director for Jacob Asset Management, which is long Apple shares.

"Without the transition, it seemed like all the signs were pointing toward that market share growth," says Chervitz, adding that he wonders "if this was the best time" for Apple to move to Intel chips.

(An Apple representative said later Tuesday that the company "currently offers the best lineup of Macs in its history, and plans to introduce more PowerPC-based Macs in the coming quarters. We think customers will continue to see the superior performance and value of Macs.")

Analysts have generally praised Apple's decision to go with Intel. The move promises to lower Apple's costs, which helps its computer become more price-competitive with rival Windows-based systems. And the move should help the company produce faster and more competitive notebook computers, demand for which is outpacing desktop systems.

In his presentation earlier this month, Apple CEO Steve Jobs noted that the Macintosh platform already has been through two such transitions in the past, first in the mid-1990s, when the company moved to the PowerPC chips, and then about five years ago, when the company launched OS X, its first Unix-based operating system.