Amidst iPhone Buzz, Core Business Provides Apple Strength

June 7th, 2007 at 3:00 PM - News by John Martellaro

The iPhone buzz is driving investors to Apple stock, and everyone is betting that the iPhone will be a success, but if it falters, the core business will remain one of the strengths of Apple, according to TheStreet on Friday.

Itis easy, the author noted, for investors to overlook the fact that, last quarter, as iPods experienced a seasonal decline in sales, the Macintosh business served as a "ballast for sales."

"Appleis computer business gets lost in the iPhone buzz," said Richard Parower, a portfolio manager at J.W. Seligman. "Investors have to keep in mind that thereis a lot more going on at the company."

There are certain risks associated with the iPhone. Customers, in too large numbers, may not try to break their current contract. The device could suffer some engineering glitches which could cast a pallor over the steep price. However, the offset to the iPhone risks is that the year-over-year growth of the Macintosh business is terrific, up 36% from a year ago. That number is triple the PC industry overall growth.

Investors can expect to see Mac sales propelled by the back to school buying season, the release of Adobe CS3, and the release of Leopard this fall.

"I see Apple as a long-term play on the growth in consumption and production of digital-video content," said Fati Naraghi, director of technology and telecom research at Newton Investment Management. Driving this growth will be the increased use of broadband and video consumption.

"Appleis longer-term growth story is predicated on mainstream consumers buying Macs as people get used to the iPod and see Apple stores opening everywhere," Mr. Naraghi noted.

All in all, Apple is in a good position to use its diversified product line to cash in on the current video and music popularity, and the long term prospects look good even if the iPhone experiences some initial glitches.