Apple Avoids Intel Hit for Now

by , 11:30 AM EDT, April 20th, 2006

Needham & Company financial analyst, Charles Wolf, notes that Mac sales for the second quarter of 2006 fell within projections. During the next two quarters, however, there is the potential for sales to drop off while Apple finishes transitioning the Mac product line to Intel processors. Once the process is completed, Mac sales are likely to surge now that they can also run Windows XP.

Mac sales for the quarter were essentially on target with Needham estimates at 1.11 million units, compared to the projected 1.15 million units. Mr. Wolf estimated conservatively on iPod sales, and Apple exceeded his expectations. He predicted 8 million units, and Apple actually shipped 8.5 million.

Although iPod sales are slowing, Mr. Wolf expects to see continued growth through the rest of the year. He commented "Growth in iPod shipments is clearly slowing, as it must, because shipments have already reached so high a level. However, we anticipate shipment growth around 40 percent for the remainder of this year."

Just as it was for many analysts, Apple's gross margin was a surprise for Needham, too. Dropping prices for Flash memory are responsible in part for the 29.8 percent margin.

Despite the fact that Mr. Wolf feels Mac sales will surge in 2007, he is not building that into his forecasts for now. Needham & Company is maintaining its "Hold" rating until the transition away from PowerPC to Intel processors is further along.

Mr. Wolf is raising Apple's Earnings Per Share (EPS) for fiscal 2006 from US$2.04 to $2.05, and the 2007 estimate to $2.58 from $2.49.

Apple stock is currently trading at $68.06, up 2.41 (3.67%).

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