Apple’s 3Q Results Wed; Further iMac Explanation Hoped

NEW YORK, NY -- Apple Computer will post fiscal third-quarter earning results Wednesday after the close of the stock market, but industry watchers are more anxious to hear the companyis forecast for the current quarter and a further explanation about why the announcement of new iMacs has been delayed.

Analysts who watch Appleis stock for a living believe Apple will post another strong quarterly result for the period just ended July 2. In April, Apple projected fiscal third-quarter profit of US12 cents to 13 cents a share on revenue of about $1.93 billion for the third-quarter. Analysts are now expecting 15 cents a share on revenue of $1.94 million, according to Thomson First Call.

Net in the same period a year ago was five cents a share on revenue of $1.55 billion.

But it is the current fiscal fourth-quarter that has analysts even more intrigued before Wednesdayis 5pm EDT conference call with Apple executives. Investors and analysts likely will be most interested in any insight Apple gives into its fourth-quarter outlook. Analysts will try and fish for further reasons as to the companyis recent announcement that it would soon announce a new consumer iMac model, but not before the current model runs out of stock worldwide.

"Iid like a further and deeper explanation as to why the delay on the iMac," Charlie Wolf, an analyst with Needham & Co., told The Mac Observer. "I donit expect to get a complete answer, but Iid like some more explanation if possible."

On July 2, Apple said it would delay release of the newest version of its flat-panel iMac until September and would not take any more orders for its current line of iMacs. In a prepared statement, Apple said, "Apple has stopped taking orders for the current iMac as we begin the transition from the current iMac line to an all-new iMac line which will be announced and available in September. We planned to have our next generation iMac ready by the time the inventory of current iMacs runs out in the next few weeks, but our planning was obviously less than perfect. We apologize for any inconvenience to our customers."

"I think weill get some further reasons as to why is happened, but I donit think theyill be completely open on why they ran out of current iMacs and didnit have the new models ready to ship," said Rob Enderle, principal analyst with the Enderle Group. "Regardless of their reasons, what happened has little explanation. I think what has happened with the iMac points up problems with the companyis core business".

Merrill Lynch analyst Steven Milunovich agrees.

"This bungled product transition gives credence to the bearsi concerns about Appleis execution and will take some wind out of the stockis sails," wrote Mr. Milunovich in a recent research report.

According to actual Apple reported numbers, iMac net sales fell to 1.1 million units in fiscal 2003 on $1.24 billion in revenue, from 1.3 million units and $1.45 million in 2002. With total net sales of $6.21 billion in 2003, iMac sales accounted for 20 percent of Appleis revenue.

As things have apparently turned south on iMac sales, the company is reaping big profits on its popular iPod portable music player, which accounts for 14% of overall Apple revenue while Macs make up the remainder.

"So the bottom line is Apple has got to do something to prop up overall sales, Mr. Wolf said. "Weill be looking for some insight in CPU direction."

Mr. Enderle said analysts will be just as interested as ever in profit margins for Apple products - especially desktop Macs.

Macintosh gross margins were 23% last quarter, according to Apple. Gross margins for the iPod stand at 22% and are predicted to decline slowly as competition in the music player market increases from players like Sony and Microsoft.

Apple will provide live audio streaming of its third-quarter results conference call beginning Wednesday at 5pm EDT. TMO will provide a recap of conference call highlights shortly afterwards.

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