Apple Computer Inc Chief Executive Steve Jobs calls the company's new iMac personal computer, which features a flat-panel monitor, "the best thing we've ever done." Some investors are more intrigued by the company's US$399 iPod portable digital-music player, introduced in November.
Many investors say Jobs needs to tap new products like iPod to fuel growth as PC demand lags, a trend they say the futuristic new iMac isn't likely to reverse. Though iPod provided a small boost to results in the quarter ended last month, Apple's shares rose 41 percent in the period, in part on optimism that the device will be the first in a line of Apple gadgets. Apple may also be working on a handheld organizer or digital camera, analysts said.
PHOTO: BLOOMBERG
"The iPod to me is an indication of a bold step they are taking," said Amy Domini, a money manager with Domini Social Investments, which owns about 102,000 Apple shares. "They've got to try new, innovative things. That's what Steve Jobs has always brought to the table."
Apple will likley report first-quarter profit of US$0.11 a share on sales of US$1.43 billion, according to a poll of analysts by Thomson Financial/First Call. That's compared with the year-earlier period's loss, excluding investment gains, of US$0.73 a share on sales of US$1 billion. In the fourth quarter, Apple had profit of US$0.19 on sales of US$1.45 billion. The company was scheduled to report earnings yesterday.
The year-ago period dragged Cupertino, California-based Apple to its first full-year loss in four years, a deficit of US$0.27 a share. Annual sales fell 33 percent to US$5.36 billion, their lowest level since 1989. Apple's shares gained 55 cents to US$21.70 Tuesday. They've risen 26 percent in the past year.
For now, the iPod, which lets users play music downloaded from the Internet or from compact discs, is a small step for Apple. Jobs, who declined requests for an interview, last week said the company sold 125,000 units from the device's Nov. 10 introduction through Dec. 31, when the first quarter ended.
Still, the device arena is one in which Apple won't have to battle Microsoft Corp, whose Windows remains the dominant PC operating system while Apple has struggled to increase its PC market share beyond 5 percent.
"The PC market is an uninspiring place to be," said Vinnie Muscolino, a money manager with David L. Babson & Co, which owns about 300,000 Apple shares. "Since they are the smallest player, it's even less so."
That's one reason why many investors applaud Jobs's attempts to diversify Apple's product line. The company is known for creating attractively designed and easy-to-use computers. Bringing those qualities to complicated electronic devices may create new sales opportunities, investors say.
The company said it is considering making a version of iPod, which is about the size of a pack of cards and can store 1,000 songs, that will work with Windows-based computers, opening up access to millions of new customers. That would be a shift for Apple, which has always focused on providing an alternative to Windows products, and illustrates the company's desire to target nontraditional markets to raise sales and profit, analysts said.
Apple's finances are healthy even though PC sales fell in 2001 for the first time in 15 years. The company can try new product lines without undue risk because Jobs has efficiently managed inventory and cash reserves, investors say.
While Apple's sales fell by a third in fiscal 2001, cash and short-term investments rose to US$4.34 billion from US$4.03 billion in 2000. That's in contrast to companies such as Motorola Inc and Palm Inc, where cash has dwindled. Apple's debt is US$300 million.
The company's cash hoard is the equivalent of US$12 a share, comforting investors, because Apple's shares are unlikely to fall below that level.
"The balance sheet is absolutely pristine," said Kevin Rendino, a money manager with Merrill Lynch & Co, which owned about 705,000 shares as of September. "From that respect, Jobs has done an amazing job -- better than anyone in the industry."
Jobs, an Apple co-founder who returned in 1997 to revive the company after being forced out in 1985, contends that the PC is entering a new stage as a "digital hub" for managing consumer electronics such as music players, digital cameras and camcorders.
He was paid US$1 in fiscal 2001 and a bonus of a private plane. The plane cost Apple US$84 million, including associated taxes.
To showcase Apple's computers, the iPod and Apple software for managing music, photos and video, Jobs opened 27 Apple retail stores last year, in areas frequented by wealthy shoppers.
That initiative has raised concern among investors who have seen other companies falter with retail stores, including Gateway Inc, Walt Disney Co and AOL Time Warner Inc. Apple earlier reversed a forecast for its stores to be profitable in 2002, saying it now expects the stores to lose money.
"In a way I hope the stores aren't successful," so that Apple won't expand its chain, Muscolino said. "It can become too much risk."
While some investors are unconvinced about the retail stores, Apple's move into gadgets has grabbed attention.
"They have a good brand name and good industrial design," said Kevin Landy, an analyst with Sparrow Capital Management, which owns about 188,000 Apple shares. "If they can translate that into the consumer electronics side, it would be favorable."
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