July 16, 2001 4:30 PM PDT

Apple's iMac: Over the hill at age 3?

The graying iMac should take center stage this week, but will the appearance be its swan song?

Apple Computer is expected to update the 3-year-old machine with faster processors and new colors at this week's Macworld Expo in New York. But analysts expect that a flat-panel iMac will debut soon and eventually replace the all-in-one machine.

The big question is whether Apple will have the flat-panel model ready in time for CEO Steve Jobs to introduce it during his keynote speech Wednesday morning.

Apple's announcement earlier this month that it was pulling the plug on the Power Mac G4 Cube heightened hopes that Apple might have the flat-panel iMac ready for the trade show. However, one source said such a move is unlikely, and an analyst said the chances of such a machine debuting this week are less than 50-50.

If Apple does come out with a flat-panel iMac, it will likely only replace the highest-priced iMacs for the time being. One source within Apple said a revamped version of the current model has been seen of late inside the company's Cupertino, Calif., headquarters, and analysts say flat-panel monitors have not become cheap enough yet for Apple to introduce a sub-$1,000 model that includes a liquid-crystal display.

Supplies of both iMacs and Power Macs have been dwindling for some time, fueling expectations that both machines will be altered at least somewhat at Macworld Expo.

Signs of the iMac's waning appeal are also expected to show up in Apple's latest quarterly results, which are due Tuesday.

"We don't expect very strong sales of the iMac," said David Bailey, an

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  Analyst: New iMacs needed at Macworld
Rob Enderle, analyst, Giga Information Group
analyst at Gerard Klauer Mattison, noting that weak overall PC sales are exacerbating the problems posed by the iMac's age.

Nonetheless, Bailey is rather sanguine on the Mac maker's prospects because of strong demand for its recent revamping of the iBook and PowerBook laptops.

"We think they'll post solid results, continuing the rebound (driven) primarily by their portables," said Bailey, who expects a profit of 17 cents per share on revenue of $1.6 billion.

A consensus of analysts expects Apple to report earnings of 15 cents a share, according to First Call. That's down substantially from a year ago, but an improvement on the massive loss two quarters ago and the slim profit last quarter.

However, Bailey said that sales of the 3-year-old iMac continue to decline and that Apple could definitely benefit from a new version of its flagship consumer desktop.

"In order to continue their momentum, they need to announce changes as significant as (those made to the) iBook and PowerBook," Bailey said, adding that Apple's strategy appears to combat slowing PC sales by giving its existing customers a good reason to upgrade their desktops. But just adding a faster G3 processor or more memory is unlikely to boost sales, Bailey added.

Charles Wolf, an analyst at Needham & Co., said Apple can manage the

Apple
Stock price from July 2000 to present.  
Source: Prophet Finance
current quarter without a new iMac because this period is driven largely by sales to schools, which are more focused on cost than on new design. However, he expects Apple will come out with a flat-panel iMac sooner rather than later.

"It's not a question of 'if,' but 'when,'" Wolf said, noting that Apple's introduction of the iBook at $1,299 in early May shows the company is getting close to the possibility in terms of cost. Still, Wolf put the odds of a flat-panel iMac debut at Macworld Expo at under 50 percent.

Some analysts speculate that even if Apple sticks with the current iMac design this time around, it could introduce the flat-panel version around October.

"In order to make it in time for the holiday season, products need to be in the (distribution) channel by early November," Bailey said.

In his keynote speech Wednesday, analysts expect Jobs to focus on progress with Mac OS X. They will also be looking for other announcements, one of which could be a timetable of when Apple plans to open more of its retail stores this year.

"They were shooting for 25, and two are open," Bailey said.

Wolf added that Mac fans should always expect something unexpected, noting there has been at least one surprise at each Macworld Expo since Jobs returned to the helm at Apple.

 

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