All Eyes Are on Jobs' Report at Apple's MacWorld Event

Investors expect a major announcement about the firm's Internet strategy.
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Steve Jobs

should have been a magician.

Apple's

(AAPL) - Get Report

interim CEO will stride up to the podium at

MacWorld

Wednesday in his patented outfit of blue jeans and black turtleneck and receive a standing ovation. With a wave of the hand, he will then wow the audience by unveiling a handful of product and strategic innovations behind a curtain at San Francisco's

Moscone Convention Center

.

What will Jobs, who has led a stunning revival of this once-struggling PC pioneer, pull out of his hat? Probably a plan to expand the powerful Apple brand onto the Internet, analysts say. After all, a promise CFO Fred Anderson made last July to the Street -- that the company would introduce an ISP strategy in six months -- is coming due. So investors, who are eager to see Apple extend its mighty brand, will want details.

What's at Stake

After seeing its stock leap 145% in 1999, the pressure is on Apple in a way it hasn't been in years. Though Apple keeps reporting strong earnings and sales, the stock is no longer a bargain, trading at 35 times fiscal 2000 earnings as it enters a year in which the company will face tougher year-over-year comparisons. Still, the bulls remain in Apple's corner despite a pullback in its shares Tuesday amid the Nasdaq's biggest-ever one-day point decline.

A Bright, Shining Apple
After last year's run-up, the pressure is on.

Those people say Jobs may introduce some kind of Internet strategy. "That's what we're focusing on," says David Brady, who runs

Stein Roe's

(SRYIX)

Young Investor and

(SRLFX)

Large Company Focus funds. Brady, whose firm owns Apple as a core holding, figured the company generated a 40% to 50% overall unit increase in its first quarter ended Jan. 1, compared with the same period a year ago. Analysts say the company had a tamer 38% year-over-year increase.

Apple already uses

EarthLink

(ELNK)

as the default ISP on its iBooks, so that's a likely partner, says Brady, especially after EarthLink's planned merger with

MindSpring

(MSPG)

closes in March.

An ISP deal isn't exactly novel, so Jobs may have to introduce more than a partnership.

Gateway

(GTW)

, the PC leader in ISP strategy, recently outsourced its 400,000-customer ISP business to

America Online

(AOL)

. AOL approached Apple last year, but the financial terms AOL wanted were "too onerous," says one analyst who requested anonymity. AOL's policy is not to comment on rumors or speculation. Apple didn't return calls seeking comment.

The Other Stuff

Apple also hasn't confirmed what Jobs plans to announce, but analysts such as Rich Gardner of

Salomon Smith Barney

say there will be good news for the company's creative community. One item may be a new and more graphically robust G3 notebook. Gardner, who rates Apple an outperform, also says look for the launch of a larger version of its best-selling iMac, featuring a 17-inch monitor, up from 15 inches. Salomon has done no underwriting for Apple.

Since it's a public forum, Jobs can drop some financial hints, and one might highlight Apple's iMac and iBook unit growth in the quarter. Analysts are estimating Apple sold 650,000 to 700,000 iMacs and 200,000-plus iBooks. "And they could have sold a lot more if they could have made more," says Charles Wolf, an analyst at

Warburg Dillon Read

.

Wolf predicts Apple's Japan sales will be much better than expected, making up 25% of the company's total iBook sales for its most recent quarter. That's up from 13% in the company's fiscal first quarter of 1999, he notes. His firm has a buy rating on Apple and has done no underwriting for the company.

The Branding Game

The company also may announce a significant rebranding campaign that will include taking "Computer" out of its official title. "I think this would signal to investors that Apple has a broader plan than just selling computers," says Eric Yang, an Apple shareholder and editor of the

MacEvolution

newsletter.

Jobs' semiannual keynote speech (Apple also hosts a July meeting in New York) has become the high-tech world's equivalent of the

Super Bowl

. There's even an unofficial betting line. "There is a 65% probability that Jobs will unveil an Internet initiative and a 5% chance of a handheld device announcement," says Warburg's Wolf, a self-described Apple oddsmaker.

Who's got tickets?