, the time may be ripe to get back to the Mac.
Over the last two years, the company's popular iPod music players have revived the company's financial results and stock price. But now, with iPod sales slowing, many investors awaiting Wednesday's third-quarter results are turning their attention back to core computer sales.
"I want to see what type of market share they're picking up," says one buy-side analyst who asked not to be identified and whose firm has no position in Apple's shares. "For me, that's the main issue."
Analysts have been predicting that the popularity of the iPod would have a "halo effect" for Apple, attracting new customers to Apple's Macintosh computers. And in recent months, the company's sales have outpaced the larger PC market. But some analysts have questioned the
sustainability of the halo, especially as Apple moves into a transition period as it
changes the chips at the heart of its computers.
For their part, sell-side analysts have high hopes both for Apple's just completed quarter and for coming periods.
Wall Street has predicted that Apple will post a profit of 31 cents a share on $3.34 billion in sales. That estimate is significantly above the company's own outlook; back in April, Apple officials forecast the company would earn 28 cents a share in the quarter on $3.25 billion in sales.
Either way, the result would be a significant improvement over the year-earlier period, when Apple earned $61 million, or about 8 cents a share, on $2.01 billion in sales.
Similarly, for next year, the sell-side consensus is for a profit of $1.54 a share on $16.31 billion in revenue, which would improve upon this year's predicted results of EPS of $1.33 on sales of $13.7 billion.
But Apple could run into headwinds in trying to meet those forecasts if iPod sales slow down, as many now seem to expect.
Clearly, the iPod has been crucial to recent success. In the first half of Apple's current fiscal year, for instance, iPod sales comprised 33% of Apple's total revenue. But the year-over-year increase in iPod sales accounted for a whopping 60% of Apple's total revenue growth in that period.
Recent signs, however, indicate that the
iPod's growth is starting to slow. Apple's iPod inventory has grown, the company has cut prices on some of its players and the company's rivals and suppliers have reported slower-than-expected sales growth in the past quarter.
"All the bears have you convinced that iPod sales are going be disaster," says Scott Rothbort, president of LakeView Asset Management and a contributor to
sister Web site
, who is long Apple.
However, even if iPod sales weren't disastrous in the past quarter, most analysts do believe their growth will
inevitably slow, thanks to the law of large numbers, a maturing market and increased competition. Thus, Apple's expected growth is going to need other fertilizers.
Many observers have predicted that the company will follow up its iPod success with new ventures in other markets, such as digital video players or some kind of entertainment hub.
But for many analysts, the company's computer business represents its best near-term opportunity. That's because Apple's market share in the PC market is around 2% to 3%. Nudging that portion up even 1 or 2 percentage points would be fairly insignificant to the overall market, but would mean big things for Apple -- in effect, almost doubling its computer sales. Even with the iPod's growth, some 46% of Apple's sales still come from sales of the Macintosh.
Many Apple bulls believe the company is already starting to gain share and will continue to do so. Not only has the iPod introduced consumers to the renowned ease of use of Apple's products, but growing concerns about the security of computers based on
Windows operating system are likely to drive sales of Apple's alternative, they say.
"They are making the transition from the music player to selling more PCs," says Alan Lowenstein, a portfolio manager at American Fund Advisors, whose fund has no position in Apple. "I think you are going to see that more and more people are buying Apple computers."
Some analysts, though, have been skeptical of Apple's near-term prospects. Last month, the company said it will switch over to chips made by
as the basis for its Macintosh computers. As a result, some Mac customers have said they may hold off on buying computers during the transition, waiting to see how well the company will support its older PowerPC-based Macs and how older software will run on the newer Intel-based machines. During similar transitions in the past, Apple's market share has slumped.
Wednesday's report may be the first sign for investors of whether the company's Mac sales will wilt or blossom this time around.