Analyst: Poor iMac Sales, PowerMac Delays to Hurt Apple Stock

The brokerage house Soleil Securities Group downgraded Apple Computer stock on Tuesday to iHoldi from iBuyi on concerns that the G5 iMac is not flying off store shelves and delays continue in the shipment of high-end PowerMacs.

In the report obtained by The Mac Observer, Soleil analyst Shannon Cross wrote she is concerned the G5 iMac might not be selling as well as many expected.

"Our continuous checks...of over 50 Apple stores and channel partners lead us to conclude that demand (for the G5 iMac), while solid, is not overwhelming," Ms. Cross wrote. "During the last couple of weeks of September, most stores werenit keeping lists (of people wanting iMacs) as they had done for iPod miniis."

Ms. Cross credited her contention that G5 iMacs have not sold phenomenally well by noting that Apple has not put out a press release since the announcement of the G5 iMac on August 31st indicating the number of pre-orders for the product, "as they had done earlier this year for the iPod mini and AirPort Express."

The report estimated 152,000 iMacs and eMacs will be sold in the fiscal fourth quarter, which just ended September 30, but that there is concern Apple will be not able to hit Soleilis unit estimate of 397,000 for the holiday quarter.

The report also voiced concerned for the limited availability of the Dual 2.5GHz PowerMac, launched in June.

Ms. Cross said she would be more bullish on Appleis stock if the company released more compelling iPod products such as a flash-based player, Hewlett-Packardis North American iPod rollout turns successful and is expanded internationally, iPod sales drive Mac sales, and Apple is "able to translate the early and dominate lead in digital music into a more structural position of strength."

Ms. Cross wrote Appleis iPod product line is a colorful silver-lining for the companyis stock. "We expect total iPod sales (for the fiscal fourth quarter of 2004) of 1.1 million, including 250,000 from the HP iPod," she wrote.

She recommended Apple strongly consider expanding its iPod partnership with HP internationally. "We believe that HP would be a strong channel partner with Apple in Europe, where HP garners 40% of revenue and Apple has a smaller retail presence."

In addition, Ms. Cross said she might be more aggressive on Appleis stock "if/when the company launches new devices targeted at expanding idigital lifestyle.i" She said she believes Apple could be working on to fill such a void would be a "TiVo-like device or idigital hubi that could manage music and video, perhaps wirelessly, in a home." She gave no eveidence to support her claim.

While noting Appleis stock is up 82% in the past year and 8% in the past month alone, Ms. Cross believes share price appreciation has now caught up with near-term earnings expectations.

"We maintain our US$2.1 billion revenue and $0.18 (earnings per share-EPS) estimate for (the fiscal fourth quarter of 2004)," Ms. Cross wrote. "We believe that there may be some upside to revenues from strong iPod sales, but that airfreighting and lower margin from HP iPods may mitigate EPS upside."

Analysts polled by Thomson First Call currently expect Apple to earn 18 cents a share, on $2.1 billion in revenue, for its just-ending fiscal fourth quarter. During the same period a year ago, Apple earned 8 cents a share on revenue of $1.71 billion.

Apple will announce its fiscal fourth quarter results Wednesday, October 13th after the close of the stock market. A conference to discuss the quarterly results will be broadcast on the Web at 5pm EDT.

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