SAN FRANCISCO -- Apple's ( AAPL) fourth-quarter results after Monday's closing bell may show whether the recent innovation will validate a soaring stock.

The company showed its mettle during the quarter with an impressive update of its blockbuster iPod franchise and the increasingly popular line of Mac computers. It also made a wise -- albeit poorly timed -- midcourse correction to the price of its iPhone, which propelled sales above 1 million in early September.

As a result, Apple's stock has notched a series of all-time highs since mid-September.

On Friday, the stock fell along with the rest of the market, but still managed to close at $170.42, just below an all-time high of $173.50 reached in the previous trading session.

Analysts have helped fuel investors' expectations by steadily raising fourth-quarter earning estimates to an average of 86 cents a share on $6 billion in revenue, well above the company's forecast of 65 cents a share and $5.7 billion in sales.

While the iPod and iPhone have enjoyed much of the limelight, Apple's growth story is predicated mostly on the Mac. In the previous three quarters, Mac sales have outpaced other Apple products by increasing their contribution to sales from 36% to 41%.

Industry research shows that Apple is capturing a growing share of the personal computer market , prompting analysts to ratchet up their estimates of Mac unit sales.

Citigroup's Richard Gardner lifted his Mac sales forecast from 2 million to 2.17 million, a 35% increase over the same quarter last year. Sales at this level may stem in part from Apple's decision to expand sales through Best Buy.

Estimates for iPod sales cluster around 9 million to 10 million units, a roughly 15% increase over the same quarter last year. Apple's fourth-quarter results will show whether the newest iPod -- the iPod touch --- can help slow the sharply decelerating growth in iPod sales as consumers increasingly buy lower-priced models.

With its Wi-Fi capability and wide screen with touch sensitivity, the touch is the most significant update to the iPod franchise and marks Apple's early claim to the market for handheld video devices.

Apple's quarterly results will give investors a clearer sense of how iPhone sales can affect the company's finances. Estimating the iPhone's impact has been difficult without sales data because Apple accounts for each unit sale over a two-year period. It's also unclear how much revenue Apple is generating from its portion of the service contracts that AT&T ( T) provides to iPhone users.

Like most consumer electronics makers, Apple's gross margins depend heavily on component pricing. In the last quarter, CFO Peter Oppenheimer indicated that a glut in fash memory chips used in iPods had reduced prices and improved gross margins. In the fourth quarter, Apple may have negotiated lower prices for components shared by the iPod touch and iPhone, like the scratch resistant screen.

In order to justify the market valuation implied by its stock price, Apple needs to show unequivocally that its ability to innovate makes it far more profitable than other consumer electronics manufacturers.

Kirk Kim, a portfolio manager with Transamerica Investment Management, said that earnings in the vicinity of $1 a share will be a clear success. But it's hard to say how the market will react to anything less.

Kim, a long-term bull on Apple, has steadily been adding Apple shares to the 5.5 million in his portfolio as more investor money has come in.

Darren Chervitz, research director at the Jacob Internet fund, is less optimistic. The Jacob fund has trimmed its Apple position from roughly 2.5% of assets under management to about 1% on concerns that its valuation is overstretched.

"We're being very cautious, and our decision (to sell Apple shares) is based almost entirely on valuation concerns, not financial fundamentals," said Chervitz.

Overall, Chervitz is concerned that an economic slowdown and trouble in the housing markets could rein in consumer spending.

Sushil Wagle, a portfolio manager with J.W. Seligman and an Apple bull, said Apple enjoys greater insulation from economic shocks than most consumer electronics makers because of the cachet of its products and their appeal to upscale shoppers.

Apple's conference call following the earnings release will be crucial in reinforcing this view and keeping Apple's stock afloat at its current lofty levels.

An important clue to Apple's sales momentum will be sales from the company's branded stores. Sales growth above general retail levels would buttress Wagle's argument that Apple is less susceptible to a moderate pullback in consumer spending.

Transamerica's Kim will be looking for Apple to discuss early sales of its new Leopard operating system, which will be an early indicator of future Mac sales. Leopard is scheduled for public release on Oct. 26.

Another area of keen investor interest is international sales, including the level of iPhone sales that Apple anticipates when it releases the device in the United Kingdom, France and Germany next month. They will also be listening for news on any plans that Apple has to open more of its own stores in Europe.

More than anything, investors will be looking for signs that Apple can maintain its innovation moxie. Possible new products include an iPhone that works on a faster 3G network, or a slimmed-down version of the iPhone based on the design of the iPod nano.

Investors are also awaiting an ultra-slim Mac notebook using flash memory, and further plans for Apple TV, which could eventually serve as television set-top box and home media hub.

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