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Will Apple earn its keep?
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July 10, 1998: 11:59 a.m. ET
While analysts expect a good quarter, keep your eyes on top-line growth
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SAN FRANCISCO (The Red Herring) - Apple Computer still knows how to put on a show. Steve Jobs, the company's cofounder and CEO -- does anyone think "interim" is still necessary? -- made a surprise appearance at Macworld Expo, after his public relations staff had reported he'd be making a virtual appearance from the West Coast.
Flying in on a red-eye, Jobs wowed the crowd attending the conference at the Jacob Javits Conference Center in New York City, touting the computer manufacturers' successful alliance with Microsoft, its plans to roll out the consumer-oriented iMac, and its return to profitability -- then turned around to catch a flight back to California.
On Wall Street, not everyone was as impressed. Investment firm, Robert M. Cohen, Inc., downgraded Apple (AAPL) from "Speculative Buy" to "Neutral" and their analyst Keith Bossey said the stock had reached his price target of 32. Analyst Lou Mazzuchelli of Gerard Klauer Mattison remains bullish on the company, however, reiterating his "Buy" rating and 12-month price target of 40.
Apple plans to announce earnings next week. According to First Call's analyst consensus, Wall Street expects earnings of 0.33 per share. Mazzuchelli, however, expects the company to earn 0.42. Is he out ahead of the pack? "Anybody who does their homework could come to the same conclusion," says Mazzuchelli.
While the company has been touting the iMac since May, it's not due to roll out until mid-August. According to Mazzuchelli, Apple's Power Macintosh and PowerBook lines have fueled revenues in this quarter, while the iMac won't show an impact on earnings until next quarter. And it's yet to be seen whether Apple will improve profits by growing sales, as opposed to cutting costs.
"I'm being optimistic deliberately," says Mazzuchelli. "It's not going to be a lot of top-line growth. But if you string a couple of those points together, you get a trend." And as any trader will tell you, the trend is your friend.
Eyes on iMac
Much will depend on the iMac's impact on the consumer and education markets. Forecasts for sales have ranged from 400,000 to 1 million units; but with the use of more standard parts and flexible manufacturing processes, Apple should be better prepared to handle the fickle demands of home shoppers.
Recent layoffs in its Ireland plant, while boosting profitability, may constrain Apple's ability to expand production should consumer demand take off. And the inclusion of a faster modem, while appealing to consumers, will thin margins on the iMac.
Apple has also patched things up with developers and content providers; hot games like Tomb Raider II are now available for the Mac OS, and the Walt Disney Co. has agreed to make its Disney Daily Blast online offering available for the Mac. (Given the cross-platform nature of all Web standards, Disney's past omission of support for the Mac OS was curious -- and perhaps more attributable to its one-time partnership with the Microsoft Network than to technological barriers.)
Will Apple expand its share of the pie? "We would expect to begin to see year-over-year top-line growth in the December quarter," Chief Financial Officer Fred Anderson told the Herring in May; Anderson also predicted that iMac and other new products would let Apple grow its share of the PC market. For now, enjoy the show -- but keep a close eye on Apple's numbers. 
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