Macs Bask in the Glow of the iPod

Apple announced that it has back-to-back record quarters of Mac sales, and analysts believe a lot of that attention has to do with the iPod as well as the Intel switch and Boot Camp.

Before Apple Computer announced its fourth-quarter financial results on Oct. 18, many analysts had predicted strong sales of the companys Macintosh desktops and notebooks.

Those analysts were not disappointed.

The Cupertino, Calif., company reported its second straight quarter of Mac sales, with 1.61 million sold in the companys fiscal fourth quarter. That followed the 1.3 million Macs sold in the third financial quarter of 2006.

Those Mac sales helped the company post a profit of $546 million or 62 cents a share, a 27 percent increase compared to last year.

Those numbers reflected what company officials deemed a strong and growing interest by consumers for Mac and Mac-based products. In his remarks following the quarterly announcement, CFO Peter Oppenheimer said internal surveys showed that 50 percent of retail Mac purchases were made by new customers.

The reason for the Mac resurgence in the past year may have a lot to do with the popularity of what has become Apples signature product—the iPod.

In the past five years, the company has sold 68 million music players, and the fourth quarter saw 8.73 million iPods sold, which beat many Wall Street estimates.

Gene Munster, a financial analyst with Piper Jaffray, of Minneapolis, wrote that the clear beneficiary of the popularity of the iPod has been the companys Mac product line.

"The formula is working," Munster wrote on Oct. 19. "The 68 [million] iPods sold in the past five years [39 million of those were sold in the last 12 months] are translating to the resurgence in the Mac platform with the worldwide Mac market share increasing from 2.1 percent in March of 2006 to 2.8 percent today."

Munster added that Apple will eventually continue this cross-product relationship to include the soon-to-be available iTV product as well as the much-rumored iPhone.

/zimages/3/28571.gifClick here to read more about the iMac update with Intel.

Munster also believes that December will be a critical month for Apple and the Mac since the company cannot bank on additional buzz from the Macs nine-month switch to Intel microprocessors that started at the beginning of 2006.

Munster writes that Apple runs the risk that many of its longtime users have already upgraded to the Intel-based machines and sales may slump unless more new users come through the door.

"We view December as the rubber hits the road quarter for Mac, given December will not benefit from as much pent-up demand from the Intel transition," Munster wrote.

While the connection between the iPod and the Mac is significant, Roger Kay, president of Endpoint Technologies Associates, in Wayland, Mass., believes the Macs success is more connected to the companys switch to Intel and the simple fact that Apple is building a much better line of notebooks and desktops than it has in the past.

Overall, the future of the company could not seem brighter, Kay said. Apple itself reported that its revenue in the fourth quarter would be $6 billion to $6.2 billion and it would have earnings per share of 70 to 73 cents. (Wall Street consensus called for revenue of $6.44 billion and earnings per share of 77 cents.)

"They beat every expectation," Kay said. "They forecast a very strong quarter ahead, and they had a high degree of confidence about their future."

Its not only Apple that is reporting that more and more customers are turning to the Mac line.

A report by Gartner, of Stamford, Conn., showed that Apple ranked fourth in United States for PC units shipped during the third quarter of 2006.

Apple, which trails Dell, Hewlett-Packard and Gateway in the U.S. market, showed a 31 percent increase from last year, according to the Gartner report.

Martin Kariithi, an analyst with Technology Business Research, in Hampton, N.H., said Apples computer business has benefited not only from the buzz around the iPod, but also from the use of its Boot Camp software, which allows a the Windows operating system to run on the Mac, as well as the Intel conversion.

During the quarterly earnings report, Apple officials said the company reported that more than a million customers have downloaded the Boot Camp software and that the entire Intel transition has been completed.

"The biggest boost for Apple and the Mac has been the Intel transition," Kariithi said. "They have had a lot of crossover from people that were used to mainstream PCs."

Apple will maintain the Boot Camp momentum with its debut of the so-called Leopard operating system in the early part of 2007, analysts said.

/zimages/3/28571.gifClick here to read more about Leopard.

Apple also appears to have been helped by a price job in the Mac line. The MacBook notebook sells for about $1,099, the MacBook Pro for just under $2,000 and the Mac Pro desktop for $2,499, according to the companys Web site.

The iMac marketed for students, a growing segment of Apples customers, sells for less than $900.

During the next several months, Kariithi said, Apple will continue to focus on consumers with new offerings make the iPod a better fit with music and television downloads.

Kariithi does not see the company using its momentum to engage more of the enterprise market just yet.

First, the company would have to make a large investment in its server line—the XServe and the XServer RAID—and Intel would have to developer better products for the server, Kariithi said.

"Its a bit of an understatement to say that the iPod had made a significant change in the company," Kariithi said. "They are an iPod company. It accounts for 40 percent of their revenue. The iPod is almost taking over the whole business."

/zimages/3/28571.gifCheck out eWEEK.coms for the latest news, reviews and analysis on Apple in the enterprise.