Apple Inc (AAPL)

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Apple earnings: Bumper-crop expected
With sales well ahead of expectations, bets are Apple's earnings for its December quarter will soar.
By Amanda Cantrell, CNN/Money staff writer
January 17, 2006: 3:17 PM EST
NEW YORK (CNNMoney.com) - It is clear Apple had a banner quarter for sales, but will its earnings also top Wall Street's already high expectations?

Given the company's red-hot sales during the December quarter, some industry and Wall Street analysts think the answer is yes.

Apple (down $0.64 to $84.95, Research) is set to report fiscal first quarter earnings Wednesday after the market close; in an unusual move, Apple president and CEO Steve Jobs pre-announced sales for the December quarter during his keynote speech last week at the annual Macworld Expo in San Francisco. Jobs said Apple recorded a record $5.7 billion in sales, with a hefty $1 billion of that coming from Apple retail stores - a first for the company's retail arm.

Analysts said he hasn't pre-announced results during his Macworld keynote since the first quarter the company became profitable after his return as CEO in 1997. Jobs didn't announce earnings per share last week, but given that sales trounced Wall Street consensus estimates of $5.1 billion, analysts expect earnings to top previous expectations as well.

Piper Jaffray analyst Gene Munster is expecting the company to report earnings per share of $0.61, in line with the current consensus forecast among Wall Street analysts, according to a survey from Thomson FirstCall.

"We think it's going to be a very strong earnings call, with no heavy expenditures, and we expect earnings and growth to continue with the transition to Intel," said Richard Doherty, an analyst with market research firm Envisioneering Group. "We haven't seen any slowdown in sales since the close of the quarter."

During the December quarter, Apple sold 14 million iPods, a 300 percent increase from the year-ago quarter, and its iTunes music store surpassed 850 million in downloads.

Apple also leapfrogged ahead of PC maker Dell (down $0.20 to $30.38, Research) in terms of market cap - it hit $72.13, compared to Dell's $71.97, as Jobs pointed out in an e-mail to staffers - and maintains a healthy lead over Sony's (down $1.72 to $42.92, Research) $43 billion market cap, leading Doherty to call Apple "the world's largest consumer electronics company."

Dell has since crept back ahead of Apple, with $71.41 compared to Apple's $71.27 billion today.

But Tim Bajarin, president of technology research firm Creative Strategies, said that unlike iPod sales, Mac sales, which he estimates at around 1.2 million units shipped, did not grow at nearly the same pace as iPods. Apple shipped about a million Macs in in the year ago quarter. Growing Mac sales is important to Apple, since these items represent higher margins than do iPods.

He thinks the company would normally have sold more Macs during the December quarter but that buyers likely held off this year in anticipation that the company would roll out new Macs in January.

That may have hampered Mac sales in the current quarter, but analysts expect it to have a big impact on Mac sales for the calendar year, given that last week, Apple rolled out two lines of Intel-based Macs just six months after it announced its decision to transition its entire line of Macs from processors made by IBM and Freescale Semiconductor to chips made by Intel.

The first two Mac lines to contain the chips are the iMac desktop computer line and the MacBook Pro line, which replaces the company's Powerbook laptop line.

The new Macs contain faster, more power-efficient "dual core" chips from Intel. Jobs said the company will transition its entire Mac line to Intel processors by the end of the year, well ahead of the original timetable.

Doherty said that from his checks, the Mac Book Pro is already getting huge pre-orders, with the machines set to ship in February.
2006: the year of the Mac?

While industry estimates place Apple's current percentage share of the personal computing market in the low single digits, Piper Jaffray analyst Gene Munster said that while 2005 was the year of the iPod, 2006 could be "the year of the Mac."

Doherty agrees, saying he thinks the company could double its market share of the worldwide personal computing market from an estimated 3 or 4 percent to 6 to 8 percent in 2006.

Bajarin of Creative Strategies thinks the transition to Intel processors could help the company add another 2 percent to its market share for personal computers this year.

"An Intel chip that allows Apple to keep their systems equal to or ahead of their traditional PC counterparts will play heavily toward getting people to look at the Mac platform," said Bajarin.

Apple shares are certainly not cheap -- shares rose 123 percent last year and closed Friday at $85.59, and the company's price to earnings ratio stands at 53.96, more than double Dell's and well ahead of Hewlett-Packard's.

Those figures have led some would-be investors to wonder if Apple's share's are too expensive - and possibly headed for a correction. Piper Jaffray's Munster says no, having recently raised his price target to $103 from $80.

"What I'm asked most about is, 'How can the story continue?'" said Munster, who also anticipates Apple will announce a stock split soon. "Our response is that the iPod market is not saturated. Wall Street thinks riders on the subway are a cross section of the world; the reality is this is still (a growing market)," he said, referring to the fact that iPod use is heavy in New York and San Francisco but not nearly as prevalent in other areas of the country.

Munster added that Apple could be poised to take the lead in areas it hasn't fully developed yet, including a new entrant to the cell phone market that would presumably be more attractive to consumers than the ROKR phone, which it launched late last year with Motorola.

Munster also thinks Apple is gearing up to enter the much buzzed-about "digital living room" space. This area proved to be a major theme at this year's Consumer Electronics Show, where PC makers unveiled computers meant to act as the hub of digital music and movies in consumers' homes.

http://money.cnn.com/2006/01/17/technology/apple_earnings/index.htm

-Alt .... Go AAPL !!!!!