October 18, 2006 4:00 AM PDT

Apples for the students seen lifting Mac sales

Apple Computer will look to complete one of its most successful fiscal years ever with a bang when it reports its fourth-quarter earnings later Wednesday.

A full quarter of MacBook shipments as well as a solid back-to-school shopping season has set the stage for the earnings report, which will be released after the stock market closes. Overall, analysts surveyed by Thomson First Call are projecting Apple to report $4.7 billion in revenue, which would be a 27 percent improvement over last year's fourth-quarter revenue of $3.68 billion--at the time a company record.

Financial analysts expect Apple to report higher-than-expected Mac sales, especially in the notebook category. After its May introduction, the MacBook was available for an entire quarter this time around. This also happened to coincide with the back-to-school shopping season, and student purchases were expected to drive MacBook sales to new heights, said Richard Farmer of Merrill Lynch. Farmer raised his expectations for Apple's Mac shipments to around 1.51 million units, which would be a 22 percent increase compared with last year, he said in a research note distributed last week.

Another new system available during the quarter was the Mac Pro, which completed Apple's transition to Intel's processors. This particular system is designed mostly for Apple's professional customers, but like the MacBook in the last quarter, was probably introduced too late in the quarter to have a pronounced impact on quarterly sales.

One prominent Apple supplier thinks the Mac maker enjoyed a decent quarter. "I think you'll be happy there," said Paul Otellini, president and CEO of Intel, in response to a question about Apple's fortunes during his own earnings conference call Tuesday. "So far they've done very well with the transition" away from PowerPC chips to Intel's processors, he said.

But Apple still sells a lot of those iPods. Analysts and iPod fans finally got the new iPod Nanos they were clamoring for in September, but those units were likewise unlikely to have much of an impact on a quarter that ended a few weeks after Apple's "Showtime" event. Gene Munster of Piper Jaffray thinks Apple shipped 8.2 million iPods during the quarter.

That's less than the consensus of Wall Street analysts, but still a pretty healthy growth rate compared with last year. Farmer is more pessimistic, expecting quarterly iPod sales of 7.7 million units, which is still a 20 percent increase over the same period in 2005.

Apple executives will likely focus on the bread-and-butter numbers during their conference call Wednesday afternoon. But some analysts are likely to make inquiries about the stock-options backdating scandal that cost the CEOs of McAfee and CNET Networks, publisher of CNET News.com, their jobs last week. Apple has admitted that CEO Steve Jobs was aware that favorable exercise dates were granted for some stock options, although it has said that Jobs didn't know the implications of the practice and did not profit from the backdating.

Still, board member and former Chief Financial Officer Fred Anderson resigned from the board of directors two weeks ago in connection with Apple's investigation into stock-options backdating. Jobs is not expected to step down as Apple's CEO, but financial analysts are sure to ask if there will be any remaining fallout from Apple's investigation. Eventually, Apple expects to restate its financial reports for certain operating periods affected by the backdating.

Apple was also part of the massive recall of Sony's lithium-ion batteries in August. But since Sony is picking up much of the price tag for the replacement of those batteries, Apple has said it doesn't expect the recall to have a material impact on its finances.

Looking forward to the holiday shopping season, Apple will probably provide conservative guidance about its fortunes, Munster wrote. Last year, Apple increased its revenue by 56 percent from its fourth fiscal quarter to its first fiscal quarter, but analysts at the moment expect Apple to increase revenue by 39 percent from the fourth quarter to the first.

The ever-present Apple rumor mills have been relatively quiet since the new iPod Nanos were introduced in September. The latest gadget being debated on enthusiast sites is the iPhone, which even financial analysts believe is real and around the corner. It's possible that Apple executives may drop some subtle hints about future product directions, but the company is usually very tight-lipped when it comes to its product plans.

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32 comments

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Just Getting Started
Apple is just getting started--that's what's so amazing about their
transition from a niche company to a dominant force in the laptop,
desktop and mp3 industry.
Posted by dansterpower (2511 comments )
Reply Link Flag
Define "dominant"
Mac OS market share for all client computers was still less than 4% in September, 2006. Laptop sales are growing very quickly, but they just reached double digit market share. Desktop sales have slowed down for some time now.

Apple is still a niche company, albeit a great one.

-Mister Winky
Posted by Mister Winky (301 comments )
Link Flag
After Vista arrives so will the converts..
I know, after 10 years owning M$ machines I kicked the habit last
May..!! Once you go Mac, you NEVER look back...!!
:-)
Posted by imacpwr (456 comments )
Reply Link Flag
Since you brought it up...
<a class="jive-link-external" href="http://marketshare.hitslink.com/report.aspx?qprid=2" target="_newWindow">http://marketshare.hitslink.com/report.aspx?qprid=2</a>

MacOS has gained roughly 1% market share in 1 year. Windows has lost roughly 1% market share in one year. This is not a sea change. Just as a lot of potential Apple buyers delayed purchases waiting for the Intel Macs to arrive, a lot of potential Windows buyers are waiting for Vista to arrive.

Where's the revolution?

Keep in mind, my first computer (which I still have) was an Apple -- I like what the company is doing with OS X on Intel, but they haven't penetrated the mainstream or the enterprise yet, and this is where the great majority of sales can be found. Both will be difficult tasks.

-Mister Winky
Posted by Mister Winky (301 comments )
Reply Link Flag
Why there is a revolution
It goes like this: Everyone likes to interpret the data to their own
benefit. You think Apple is undergoing natural fluctuations in
marketshare (correct me if I'm wrong here). I believe there is a
larger shift underway. I believe this for two reasons.

First, a large majority of Windows seats are purchased by
businesses that move at a very slow pace. There is no desire on
their part to quickly upgrade to Vista, much less to Mac OS X.
They will wait for the kinks to be worked out for at least a little
while. Most new seats of Vista will come with new machines and
can not even be transfered to another machine when the first
one is outdated. Thus Windows marketshare has a tendency to
stay where it is due to inertia. That Mac OS X has gained 1% in
one year is quite an accomplishment against Windows. It is an
uphill battle for Apple, while Windows is in a solidly defendable
position. Thus a 1% marketshare gain for Apple is more valuable
than a 1% marketshare loss for Windows, representing a larger
gain than the numbers seem to show. The acceleration is a more
important factor than speed when examining the curve.

Second, the marketshare that Apple has gained is in a desirable
demographic, one that represents the future leaders of
businesses and IT departments. Students and highly educated
people are snapping up Apple notebooks at an accelerating
pace. Those same people can use their old copy of Windows on
their Mac, so there is even less of a reason not to switch.

I would like to address your comment about "OS X on Intel." Mac
OS X is the same interface regardless of what the underlying
processor is. The Intel chips certainly add speed and
compatibility (with Windows) but have nothing to do with the
power of Mac OS X.

Have a nice day!
Posted by lesfilip (496 comments )
Link Flag
Still, 1% is 1%
I see what you're saying and agree to some degree, but there's no denying that a 1% change is just that. It's not a sea change, and people have to be aware of that reality when they make bold predictions that OS X will take over the world.

In some sense, I don't think Apple event wants majority market share -- I think they want good margins and the freedom to innovate outside the bounds of demanding enterprise clients. With ~5% market share, Apple can decide to drop floppies, move to intel, etc. at their whim -- they can innovate BECAUSE of their size, but they can't grow to a dominant position unless they are willing to change their way of addressing the enterprise market (or vice versa, which is even less likely).

As a 10-20% market player, Apple can do fine if they continue to innovate. Beyond that, I don't see much growth under their current model.

-Mister Winky
Posted by Mister Winky (301 comments )
Reply Link Flag
Reply to lefilip
Sorry -- posted in te worng place -- response to lesfilip
Posted by Mister Winky (301 comments )
Link Flag
Agreed.
Subject line says it all.
Posted by MidniteRaider (94 comments )
Link Flag
Remarkably, I Agree With You 100%
And I'm glad you took the time to read my responses.

Have a nice day!
Posted by lesfilip (496 comments )
Link Flag
I agree
Apple have no reason to want change; they are making a killing being a minority player. I hope they keep doing what they are doing... and that the fanboys realise that there never will be an Apple revolution.
Posted by Andrew J Glina (1673 comments )
Link Flag
Schools benefit from runing 2 OSes natively for 1 price
Now that Intel based Macs can run Windows natively, or via
Parallels virtualization at native speed, and simultaneously as well,
it's a boon to any environment that would like to have the ability to
offer users a choice where they can be more productive.

Windows-Intel based machines can't match the advantage of
running both Windows, and Mac OS X.
Posted by technewsjunkie (1265 comments )
Reply Link Flag
With one caveat...
They have to buy a copy of Parallels and license Windows for every computer. If the school doesn't have a site license with MS, they have to buy a retail copy of Windows for every Mac (not OEM).

It becomes a more expensive proposition, one which most schools would probably forego in this age of squeezed budgets.

-Mister Winky
Posted by Mister Winky (301 comments )
Link Flag
Osxx86
If you have a pc you can.. osx x86 now the legality...
Posted by jsl99944704 (4 comments )
Link Flag
With one caveat...
Unless your school has an MS site license, you'll need a copy of Parallels and a retail license of Windows (OEM isn't legal) to run on every Mac.

I don't think many schools would value the dual-boot solution enough to spend $300+ extra per computer in this era of perma-squeeze budgets. Dual boot Macs are promising, but don't expect them to go mainstream any time soon.

-Mister Winky
Posted by Mister Winky (301 comments )
Link Flag
From empirical evidence
I have seen a large increase of Apple notebooks on my campus, and lots of windows based notebooks running linux.
Posted by qwerty75 (1164 comments )
Reply Link Flag
So true...
I used my student discount to buy an iMac with a 2.16GHz Intel
Core 2 Duo processor, 500GB Harddrive, 2GB of ram, 3 year
extended warranty, among other things for $2,198....The only
comparable MacBook Pro (with only 120GB of memory, a smaller
screen (17") and a cheaper graphics card) would cost $3,453--
DAYUM. The prices of notebook PC's haven't dropped enough to
fully replace desktops...
Posted by PCCRomeo (432 comments )
Reply Link Flag
Apple is Dominant in iPod for MP3 and Video
I was not so much as talking about "dominance" in the desktop
or laptop arean as much as in the iPod and "digital hub" arenas.

It is a generally accepted fact that the desktop as we know it is
on its way out and down, replaced by smart phones, intelligent
Televisions, etc.

In this area and in the iPod Apple controls the direction and has
a 70% market share -- 70% share is dominance.

Apples new products, in first and second quarters of 2007, will
only solidify this lead. Add to this their partnerships with
brands like Nike, Walmart, Amazon, etc.
Posted by dansterpower (2511 comments )
Reply Link Flag
Desktops Aren't Dead Yet
"It is a generally accepted fact that the desktop as we know it is on its way out and down."

I don't agree. I think people are forseeing that future, but it's a long way off. Desktop sales still represent the vast majority of the market. Not that many people are streaming music to their phones, not that many people are replacing DVRs with computers, not that many people are foregoing television purchases because they watch media content solely on their computer screens and portable devices. Form factor and quality matters, especially for media.

Believe me, I definitely want to buy a single device which can act as a media hub for the home, handling all audio formats, HD video, etc, but there are a lot of problems to work out. The biggest problems I see are format compatibility and DRM -- these issues, if unresolved, could severely curtail the media market. I won't go all digital until I'm assured that I can maintain my digital content in open, portable formats, but the media companies are doing everything in their power to keep that from happening.

The other issue (for me) is media quality: 128Kb/s MP3s sound TERRIBLE and I can't imagine downloadable video competes with HD content or even DVD-quality content. If Apple were to offer 320Kb/s audio, I might stop buying CDs, but they don't.

Apple has the opportunity to be the new Sony, but they need to move faster and expand into more markets to do so, but that could jeopardize their profitability by making them compete in consumer electronics markets with less margin.

I REALLY want to see Apple come out with a home theater line of products which operate less like computers and more like CE gear with a common UI.

If Apple were to make an all-in-one home theater unit with the guts of an Intel MacMini and a 5.1 receiver inside, a great remote and on-screen UI, an LCD or other form of TV and partner with a speaker company BESIDES Bose, they could rule the CE earth.

-Mister Winky
Posted by Mister Winky (301 comments )
Reply Link Flag
Everyone knows no one uses Macs
This article must be false. According to common knowledge.
4.7 Billion?? Can't be.
Everyone knows Macs are only for graphics artists, are much more
expensive, and are for people who know nothing about technology.

People should just buy a "real man's" computer and not examine,
or open their minds to anything else.

We should all eat vanillla too, and dress the same, march in line...
Posted by technewsjunkie (1265 comments )
Reply Link Flag
What a crock!
"Everyone knows no one uses Macs"
"Everyone knows Macs are only for graphics artists..."

I can do better... Everyone knows you have no clue what you're talking about.
Posted by Seaspray0 (9714 comments )
Link Flag
Wrong --
"Apple changed paths tonight from being forever a niche player
in the computer business to now being on track to be a
legitimate market share player," Piper Jaffray analyst Gene
Munster said

This today from a Fortune Magainze Article after Apple's
Earning's Report regarding Mac Desktop and Laptop Shipments
Fourth Quarter 2006.

Apple Machines are serious boxes that now play in the Window's
World. 2007 will only see further huge (relatively) increases.
Posted by dansterpower (2511 comments )
Link Flag
Compare the prices&
First, I'm not sure if your post was meant to be taken seriously
or if you were being totally sarcastic. Regardless of that, price
out a Dell and a Mac with the same (or as close to) the same
hardware. You will see that the price is almost identical. Now
find a Windows match for all the software that comes on a Mac
and add that to the price of the Dell along with adding some
customer support features that cost extra with Dell. The Mac is
going to be cheaper. If all you consider is hardware, then they
are about the same. Anyway my point is that price is no longer
an argument. The only argument is do you need or want that
much power in a computer? If not, then a Mac is not for you and
neither is the Dell of the same specs. And as far as a "real man's"
computer, I know many Military guys that use Macs for their
personal computer and I'm talking Infantry guys not just Signal
guys.
Posted by jones_8099 (177 comments )
Link Flag
 

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