Apple to unveil new products

By Andrea Orr

PALO ALTO: People who follow Apple Computer Inc. typically fall into two camps: those intrigued by the style of its machines and those more interested in the curve of its profit line.

The company will have something for both groups this week as it reports third-quarter results on Tuesday and brings Chief Executive Steve Jobs to the stage Wednesday to show off new products at the MacWorld Expo in New York.

Much of the latest buzz surrounding Apple has been over rumours it will introduce a new cube-shaped iMac computer as an update to its popular clam-shaped machine, or that it will come out with a more conventional mouse to replace the existing one that looks like a hockey puck and never quite fit the hands of many users.

Financial analysts, however, say there is a bigger Apple story that sometimes gets lost behind all the attention to computer fashion. After a few years of solid results and disciplined inventory management, Apple continues to suffer unfairly from a lingering reputation as a top design company with a lousy business sense.

"Investors do not appreciate the superior financial dynamics at Apple and do not accord it the valuation it deserves because - in our mind - Apple is still viewed by many as a reformed alcoholic - just one step away from the gutter," Bear Stearns analyst Andrew Neff wrote in a recent research report. Neff noted that Apple now has a strong management team "who supply the discipline and execution to Jobs' vision."

The consensus among analysts is that Apple will show a third-quarter profit of 44 cents per share, compared with a 35 cent profit for the same period a year ago. Yet analysts say that gain does not do justice to Apple's fiscal discipline and its success building a broad product base that can withstand weakness in key product areas.

Dave Bailey, an analyst at Gerard Klauer Mattison, notes that Apple is forecast to show higher third-quarter sales and earnings despite a likely slowdown in sales of its popular iMac computer, which is overdue for an upgrade.

"It shows the strength of the company in that their flagship hardware product can be down, yet total company revenues are up," said Bailey. "It highlights that the company is a lot more than the iMac."

It was two years ago that Apple upset the notion that desktop computing meant plain beige boxes, when it unveiled its unconventional blue iMac. While that launch is often viewed as the pivotal step in Apple's turnaround, the company's stability today goes much deeper.

"Their supply chain logistics are the best in the industry," says Bear Stearns' Neff, citing the company's ability to operate with a stunning one day of inventory on hand - a fraction that of its nearest competitors.

"If two years ago you would have said to me Apple would have the best financials in the industry and Compaq (Computer Corporation) would have the worst, I would have said you were crazy."

But, the importance of Apple's "insanely great" innovations are lost on no one, and industry analysts and consumers alike are eager to see what Steve Jobs will unveil on Wednesday. Interest centres on a new version of the iMac, which could help revive soft computer sales, although many Apple watchers suggest the company will also put a lot of emphasis on software.

"I think Steve Jobs will continue to hype Mac OS X," said A.G. Edwards analyst Jimmy Johnson, referring to the company's long-awaited operating system software due out in January, which is designed to be more powerful and user-friendly. "That will be a major, robust, industrial-strength upgrade, totally new."

Analysts say an increased emphasis on software could be a logical next step for Apple now that it has filled out its "four quadrant" hardware strategy with desktop and laptop machines for both personal and business applications.

Some also suggest the company could introduce new hand-held devices, although most are prepared to be surprised by what Jobs pulls out of his hat.

"They need to come up with something innovative that addresses a need that people didn't think they needed, or didn't think could be implemented," says Neff. "It's one of the things that Apple's very good at."

(C) Reuters Limited 2000.