Apple Retests Its Consumer IQ

Apple's (AAPL) stock is soaring and its revenue is booming. The computer maker has a hit product and is getting loads of favorable press.

So what's wrong with this picture? Nothing, if you ask investors who have enjoyed a run-up of 24% in the stock this year after a 200% surge in 2004.

But more-skeptical observers might note that Apple's been here before. And even some of those bullish on Apple's future admit to some doubts about whether the company can maintain its momentum.

"That's the million-dollar question," said Tim Deal, an analyst with Technology Business Research. "When you're dealing with a consumer-focused company like Apple, it's very difficult to anticipate the consumer wind. Consumer interests sometimes have no rhyme or reason."

While Apple seems to be in tune with consumer demand right now, it's had a tin ear many times in the past. As recently as its 2001 fiscal year, for instance, the company saw revenue plummet 33% amid a drop in demand for its core Macintosh computers. In the mid-1990s, revenue slipped three years in a row.

And that's just in recent days. Those with a long memory may recall that the company saw initial success and even market dominance with its Apple II and original Macintosh computers only to lose steam and market share to fierce competition.

"Apple's success is cyclical," dependent on maintaining a high interest in its products, said Deal, who has no investment in the company. "There are certainly examples in its history where it's failed to do that."

The keys for Apple, analysts say, are to keep up with demand for its hot products and to continue its innovative products. The first requirement is a problem that has frequently plagued the company, said Gene Munster, an analyst with Piper Jaffray.