Analysts: Expect Upbeat Q4 Report from Apple

Despite concerns about how company executives handled stock options backdating, most analysts expect the company to show solid fourth quarter results.

By most accounts, Apple Computer has hit the "sweet spot" of the technology market.

Several analysts, both in the IT and financial fields, believe that the Cupertino, Calif. company will deliver an upbeat fourth quarter report during its Oct. 18 financial earnings call.

Analysts point to the companys exceptionally fast incorporation of Intel microprocessors into its Macintosh line of desktops and notebooks during 2006, its announcement that the new operating system, called Leopard, will be ready by early 2007 and its domination of the consumer music market through its iPod line.

"Apple is clicking on all cylinders," Tim Bajarin, the principal analyst at Creative Strategies in Campbell, Calif., told eWEEK.

Wall Street is calling for earnings per share of 50 cents on revenue of $4.67 billion for the quarter ending Sept. 30.

During a conference call with analysts to announce the third quarter results, Apple officials said that they expect earnings in the fourth quarter of between 49 cents and 51 centers per share with revenue between $4.5 and $4.6 billion.

In his latest report for Minneapolis-based financial firm Piper Jaffray, senior analyst Gene Munster reports that Apple will not meet the expectations that it will sell 8.6 million iPods in the quarter, but robust sales of Macs, especially the MacBook, will offset the any shortfalls with the popular digital music player.

/zimages/6/28571.gifClick here to read more about Apple and its switch to Intel microprocessors.

"We recently did channel checks with 15 U.S. Apple specialist store resellers, which suggested Mac sales were above expectations in the September quarter," Munster wrote.

Munster added: "Specifically, more than 50 percent of specialist stores in our sample said that Mac sales for the quarter exceeded expectations and 73 percent indicated that they sold more MacBooks than expected."

For the third quarter of 2006, Apple reported that it had sold more than 1.3 million Macs and more than a 8.1 million iPods. Munster writes that he expects the companys iPod sales to slow to about 8.2 million in the fourth quarter, but that Macs sales should increase to nearly 1.5 million.

Now that Apple offers a complete line of Intel-based notebooks and desktops, Bajarin believes the company will get a boost as its loyal customers look to buy new Macs and new customers, intrigued by the iPod, will take a serious look at the computer line.

"You have the Apple faithful looking to update the Core Duo products and, at the same time, you have strong traffic coming into their stores for the iPod and looking at the new Macs," Bajarin said.

Despite the upbeat outlook, there have been concerns that the company will have to restate earnings, following an internal report that found irregularities in how it distributed stock options to top executives.

On Oct. 4, former Apple Chief Financial Officer Fred Anderson resigned from the board and CEO Steven Jobs issued an apology.

The scrutiny of Jobs and the way he handled the stock option irregularities increased on Oct. 11 when McAfee fired President Kevin Weiss and Chairman and CEO George Samenuk announced he would resign following similar problems at the security applications maker.

/zimages/6/28571.gifClick here to read more about the recent problems at McAfee.

Even with that added pressure, Munster wrote that it was doubtful that Jobs would resign. Bajarin said that while Apple might have to restate some of it earnings, strong iPod sales will offset any shortfalls due to restatements of earnings.

Other analysts said they would focused on what products the company would begin to offer, especially as the holiday shopping season starts.

Joe Wilcox, a Washington-based senior analyst with Jupiter Research, said that he expects Apple to talk about movie downloads in light of the companys recent announcement that it would begin to offer Disney movies through its iTunes software.

Wilcox said he would keep an eye out for the results of how many Macs the company sold, especially the sales of the MacBook Pro.

Wilcox added that he also hoped Apple would provide some insight into how the company intends to use the new Intel-based Macs to help exploit applications, like Adobe, which he said have not reached their full potential yet.

Some Apple-dedicated Web sites have started to ask when the company will refresh its Mac line with the higher performing Intel Core 2 Dup microprocessor. So far, the company has not offered any hints.

Richard Shim, an analyst with IDC in San Mateo, Calif., said once Apple decided to offer Intel-based Macs, the company moved with lighting speed to update the entire line.

He suspects that the company will use its own timeframe to update to the Core 2 Duo instead of following what the rest of the industry has done.

Shim has been impressed with Apple and its aggressive pricing of the Intel-based Macs, making the computers much more affordable for the average customer.

"They are hitting the sweet spot of a market that is a consumer-driven market," Shim said. "You have a computer that offers high performance and has a customized feel. Soon, they will have a new operating system and thats how they have distinguished themselves in the market."

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