July 9, 2002 3:50 PM PDT

Apple to expand iMac LCD display

Apple Computer plans to serve up a new iMac model with a larger flat-panel display during next week's Macworld Expo trade show, according to sources.

The upgrade to a 17-inch liquid crystal display (LCD) comes as sales have all but stalled on existing 15-inch flat-panel iMacs. Apple unveiled the original flat-panel iMac, which suspends the monitor from a pivoting arm attached to a hemispherical base, during January's Macworld Expo in San Francisco.

"Certainly, if you're going to do an all-in-one PC, both the computer technology and the screen technology have to be current," said NPDTechworld analyst Stephen Baker. "One of the reasons the original iMac was long in the tooth (in sales) was because it took them four years to get a 17-inch monitor out there."

Baker said that although it's an exciting upgrade, given that Apple started selling the flat-panel iMac only about six months ago, he doesn't think a 17-inch product "is going to help drive sales. The difference between a 15-inch and 17-inch display probably isn't enough to change the dynamic of what's going on."

What's going on, analysts warn, is a serious PC sales slump. In a research note issued last week, Merrill Lynch analyst Steven Fortuna dramatically reduced his projections for worldwide PC sales in 2002 to 2.5 percent year-over-year unit growth from 10.5 percent.

"The back-to-school market, which usually helps the September quarter, has not materialized to a great degree the past two years and may disappoint this year once again," Fortuna wrote. Such a circumstance could particularly hurt Apple, which depends on the back-to-school buying season for a summer sales boost. The Cupertino, Calif.-based company, which reports fiscal third-quarter earnings next week, issued an unexpected profit warning last month.

But even without an immediate boost in sales, Baker said, releasing a 17-inch iMac makes a lot of sense for Apple and its customers, based on the dramatic increase in demand for larger flat-panel monitors.

Baker noted that sales of 17-inch flat-panel monitors have jumped 10 times since last summer, versus a 2.5 times increase for 15-inch models. Currently, sales of 15-inch monitors make up 63 percent of the flat panel market, compared with 17 percent for 17-inch displays.

Baker credited the increased popularity of the larger display to dramatic price declines and a closing of the price gap between larger and smaller displays. For example, 15-inch flat-panel monitors sold for an average of $550 last summer compared with $1,113 for the larger display. In the year since, the price on 15-inch flat-panel displays dropped to $453, while their 17-inch counterparts dropped to $688.

"When the price is right, consumers are saying, 'For a $600 or $700 difference, I'm not going to move, but for $200 it's worth stepping up,'" Baker said.

Apple spokeswoman Natalie Sequeira declined to comment, citing the company's long-standing policy of not discussing unannounced products.

Goodies on tap
Next week's Macworld, set in New York, will largely focus on consumer products and Mac OS 10.2, code-named Jaguar, which is the next release of the Mac operating system, sources said. During his keynote, Apple CEO Steve Jobs is expected to give an August release date for Jaguar, which would be at least a month earlier than expected, sources said. But other sources said Jaguar development is so far ahead of schedule that, barring any last-minute glitches, Jobs may deliver surprise news on how soon the new OS will be ready.

Apple also is expected to announce a new version of the company's iTunes digital music software supporting new audio codecs that are part of MPEG-4. MPEG-4 is a successor to MPEG-1 and MPEG-2, technologies instrumental for delivering digital broadcast transmissions over cable, satellite and the Web. MPEG-2 also is the video standard adopted by Hollywood for DVDs. In addition, MPEG-4 is seen as a possible successor to MP3, the hugely popular audio format for compressing music digitally.

The new version may sport a services component supporting a new Jaguar feature: .Mac (Dot-Mac). As reported Monday by Mac enthusiast site ThinkSecret and confirmed Tuesday by Apple beta tester sources, the newest Jaguar testing versions replace Apple's iTools Internet services mechanism with .Mac. Like Microsoft's .Net Web services initiative, .Mac appears to be a play for tying attractive for-fee services to the operating system.

"That's a smart move," said ARS analyst Toni Duboise. "That's a little less 'Think Different,' than 'think mainstream,'" she said, referring to Apple's old ad campaign. "That's like focusing outside the box, and that's been around a long time. There's definitely a market for it, and margins are definitely better."

Given Apple's increasing focus on digital applications and its string of recent multimedia acquisitions, services tied to iTunes or even enhanced online photo services make sense, Duboise said.

"If they can do multimedia services, that's spot on," Duboise said. "Multimedia is the driving force behind replacement buyers."

In a surprising turnabout, Apple will not release faster Power Macs, as widely rumored on Mac enthusiast Web sites. The company instead will seek to trim down existing inventory, in part using a new promotion, announced Monday, sources said. Power Mac customers can save between $300 and $500 on a flat-panel monitor with the promotion, which expires in mid August.

Channel sources warned that Apple's inventory of Power Macs has been building in recent weeks, despite three sales promotions launched since April. The release of faster Power Macs in January and of Adobe Photoshop in April failed to increase sales as expected, in part because of the slow economy, say analysts.

"It's probably true inventory is high right now," Duboise said. "I've seen more aggressive promotions from Apple, and they don't generally do a lot of promoting as a general rule. That says to me they need to incite buying for their PCs and that there's some inventory out there."

The company tentatively plans to release faster Power Macs some time after the promotion ends, as early as mid August, possibly loaded with Jaguar, sources said.

Apple also plans to serve up some new flat-panel monitor models with the Power Macs, all of which will sport a new design. The new Power Macs will pack processors in excess of 1.2GHz, along with faster memory and a faster system bus, sources said.

 

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