Bright Days Ahead for Apple

Opinion: Hopefully Apple will leverage its consumer success into growth in business markets, too.

The first three months of 2005 have been a special time for Apple Computer. If you dont believe it, look at the companys financial results, which were released Wednesday. Among the highlights: CPU sales were up 43 percent from year-ago numbers and iPod sales increased by 558 percent!

This isnt a column about the iPod, but increasing sales by more than five times (to 5.3 million units) has got to impress. My congratulations to whomever at Apple was able to manage such an increase in manufacturing capacity, parts procurement, and the like.

To find out more about the happy financials, I called my friend Charlie Wolfe, a securities analyst at Needham & Co., who happily disclosed that when Steve Jobs announced iTunes would be ported to Windows, he bought Apple at $6 per share. Its recently been selling for more than $41 per share.

Great investments I missed aside, Wolfe is one of the few analysts I really trust. Hes been around forever, and Ive known him almost as long. We dont always agree, but his net worth has mine beat many times over, so you decide.

Wolfe put it this way: "The company is just kicking ass." But since he gave me 10 minutes of his valuable number-crunching time—he had a report to get out—I can provide more detail.

  • The 43 percent increase in CPU sales came at the low end: iMacs, eMacs, and minis. The mini represented 225,000 of the 1,070,000 CPUs Apple sold during the quarter ending March 26, 2005. (These are Wolfes estimates.)
  • Sales of the high-end Power Mac desktops slowed considerably. iBook and PowerBook sales both increased, the latter presumably on the strength of sales to professionals who bought a portable to replace or supplement a desktop.
  • Windows users are crossing over to Mac because of security problems with the Microsoft Windows operating system. People are tired of viruses and weekly patches and want something that requires less upkeep.
  • Wolfe said he expected to hear about Windows users buying a Mac to get the iLife creativity suite but has been unable to find those customers. Security concerns, yes; iLife, no.
  • Most of the Mac minis went to Windows users. "Its a killer machine," Wolfe said.

Wolfe predicted that Apples worldwide PC market share, now at 2 percent, will double by 2009. Such an increase would be huge for Apple, but it would create barely a blip on Microsofts radar screen. He said this growth will be driven in part by iPod users, 10 to 15 percent of whom will eventually buy a Mac CPU.

Such growth would translate into a larger marker for third-party Mac software and, with it, the options for business customers. Also, enterprises may find more employees requesting to use a Mac, whether in the office or when working from home.

Fortunately, features in the upcoming Mac OS X "Tiger," due April 29, and an update to Microsofts Office for Mac, due this summer, will make it easier for Macs to play on Windows networks. These connectivity improvements will make it easier for IT staffs to accommodate their users Mac-related requests.

/zimages/6/28571.gifDevelopers, dealers and analysts have given a strong welcome to Tiger. Click here to read more.

Wolfe was a little dodgy when I asked whether Apples growth now has nowhere to go but down. CPU growth should continue, he said, while music-player growth may slow. Year-to-year growth of 500 percent rarely continues for long.

Nevertheless, Wolfe predicted Apple still has brighter days in its future and its my inclination to agree. My hope is that Apple will leverage its consumer success into growth in business markets, too. But that may require as much a grassroots effort—people taking Macs to work and using them to work from home—as anything Apple can do directly.

/zimages/6/28571.gifFor insights on the Mac in the enterprise, check out Executive Editor Matthew Rothenbergs Weblog.

It may seem odd that success with an MP3 player is helping Apple gain CPU share. Such a thing would be unthinkable, I suppose, at any company but Apple. But no company is at the intersection of computing and consumer electronics in the way Apple is today and will likely remain for the foreseeable future.

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