Needham expects the new chip to boost Power Mac sales in the first quarter of fiscal 2004, ending a two-year lull that the analysts blamed in part on the slow rate of performance increase to Motorolas PowerPC G4 processors, which currently drive all Power Macs. the report also noted that the release of QuarkXPress 6.0 was announced for Mac OS X last week, which the analysts expect to boost Power Mac sales among its core market of graphics professionals. Additionally, Needham said it was seeing "surprising strength" in the advertising market for next falls television season, which is expected to boost Power Mac sales to creative markets. Citing low margins on music downloads, the analysts said they dont believe the iTunes Music Store will have a short-term material impact on earnings, but they were impressed by sales of the new iPods, for which Apple received 110,000 orders in the first week of availability.The analysts also said that they see the port of the iTunes Music Store to Windows as an abandonment of Apples Mac-only software approach. The report said that this "overdue move" will allow Apple to target a wider market, positioning it as a "digital entertainment company" that can use future digital devices to offset the possibility of poor PC sales. Needham also raised its 2003 earnings estimate from $0.22 to $0.24 thanks to the uptick in iPod sales, and its 2004 estimate from $0.50 to $0.60 based on its forecast of higher iPod and Power Mac sales. Matthew Rothenberg, managing editor of Ziff Davis Internet, contributed to this report.
"Although Apple has not provided subsequent updates on iPod sales, anecdotal evidence indicates that sales have continued at a brisk pace," the research note said. Needham believes that iTunes will be released for Windows by this fall, followed by an "exponential increase" in downloads at the Music Store. "What were counting on is a corresponding pull-through of iPod sales to Windows users," the report said.