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Apple's Quarter Seen as Strong

July 12, 2005

Red Herring

A report finds Apple will benefit from its switch to Intel chips and that the computer market is robust.

Since Apple Computer disclosed last month it would start building its computers with Intel chips, the company's hardware sales have apparently risen and will likely remain strong after the switch occurs, a report said Tuesday on the eve of Apple's third-quarter earnings release.

Some 12 percent of respondents surveyed between June 13 and June 20 said they had bought Apple laptops in the past 90 days, compared with just 6 percent of respondents to a similar survey in March.

The latest ChangeWave Research report surveyed 1,809 senior technology and business executives.

Interest in Apple desktops has also increased, according to the report, with 7 percent responding that they had purchased desktops in the past 90 days, versus 2 percent in March.

Yet even with the growing appetite for Apple, the company's computers have only 3.7 percent market share in the United States, its strongest region, according to research firm Gartner. PCs overwhelmingly dominate.

Demand for Apple products rose despite the company's June 6 announcement that it would stop using Power PC semiconductors from IBM, Apple's long-standing supplier, in favor of Intel chips.

Indeed, computer users seem to have responded positively to Apple's move. The survey revealed that 19 percent of respondents were more likely to purchase an Apple computer in the future after the Intel announcement, as opposed to 3 percent who said they were less likely to do so.

The report comes on the eve of Apple's latest earnings report, which is expected to show a big jump in profit over the year-ago quarter. Apple is forecast to earn $0.31 per share for the quarter that ended in June, up from $0.09 in the year-ago quarter, according to the consensus of 17 analysts surveyed by Thomson One Analytics.

Apple, however, has tried to lower expectations. During the second-quarter earnings conference call in April, Apple executives gave guidance of only $0.28 per diluted share.

Some company watchers speculate that over-shipments of Apple's no-frills computer known as the Mac Mini and slower sales of the iPod, the company's wildly popular MP3 player, could prevent Apple from sustaining the strong results seen in the quarter that ended in March.

In that quarter, Apple posted earnings of $290 million, or $0.34 per share. That was $0.10 per share above Wall Street expectations.

Bumpy Road

But the ChangeWave report indicates that Apple is expected to do well in the short term and after the Intel switch is completed.

"Their next quarterly earnings announcement ought to be quite favorable regarding PC sales," said ChangeWave founder Tobin Smith. "Once Intel Macs are available [in summer 2006], our survey shows consumer purchases will surge big time. The Intel partnership is clearly a transformational deal for Apple."

But the time in between won't be so rosy. The survey shows that 42 percent of respondents are delaying Apple computer purchases to wait for the Intel chip.

"In later quarters, the delayed purchases we're seeing should have a significant negative impact on their PC profits," said Mr. Smith.

The PC market overall is strengthening, reported ChangeWave, which also could account for Apple's success.

Round Rock, Texas-based Dell made even bigger gains in the last 90 days. Some 51 percent of those surveyed bought Dell desktops and 42 percent purchased Dell laptops.

Hewlett-Packard came in second, just above Apple, with 9 percent buying desktops and 13 percent purchasing HP laptops.

ChangeWave Research is a subsidiary of Phillips Investment Resources.