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Wednesday, July 14, 1999 Published at 19:04 GMT 20:04 UK

Business: The Company File

Apple's comeback: Mirage or reality?

The iMac helped Apple win back market share

By BBC News Online's Kevin Anderson

Apple Computers is the darling of Wall Street - again. Its share price has risen to a six-year high, while fellow computer makers like Compaq and Dell see their stocks shaken.

But future success is not guaranteed. As prices for personal computers plummet, Apple could see its revenues diminish, even as its sells more computers, analysts say.

In trading late last week, the stock was selling for $55. The stock last traded at those levels in 1993 before the company suffered years of punishing losses that left many questioning how long the computer maker could survive.

Comeback to come

[ image: Steve Jobs announced the seventh straight profitable quarter]
Steve Jobs announced the seventh straight profitable quarter
Analysts have ended the company's death-watch and now predict the company is well positioned to build on its growth.

Last week, BancBoston Robertson Stephens analyst Alex Mou upgraded Apple from "long-term attractive" to "buy," which helped spark the stock's rally.

"I believe they are in a multi-year comeback," says Mr Mou.

Apple's US market share had fallen to 4.3% by 1997.

But bolstered by sales of the new iMac computers, Apple's boss - and founder - Steve Jobs could recently announce that the company had won 12.5% of the US retail and mail-order market for the last two quarters.

Apple is once again one of the top five computer makers in the US, Mr Mou predicts that during the next two years the company will extend its distribution and continue to improve its operations.

Leaner, meaner

One year ago, Kurt King of Banc of America Securities was a self-confirmed pessimist on Apple's future. Now he says that Apple has made "internal improvements far better than I ever expected".

[ image: The company still suffers product shortages]
The company still suffers product shortages
In three quarters, Apple reduced its inventory from 30 days to eight. Apple now beats Dell, previously the industry's benchmark, in inventory on hand.

But the slim inventories have led to shortages of popular products such as the iMac and the high-end PowerBooks.

Mr Mou is confident that the company will increase its inventory slightly, and points out that "if anything, it's demand outpacing supply" and not a sign of supply chain problems.

In addition to slimming down inventories, the company has also slimmed down its product line-up, focusing on four products: Professional laptops and desktops, and the iMac consumer desktop and an as-yet-unreleased consumer laptop.

The consumer laptop is the only missing link in the product line-up. Steve Jobs, though, is expected to roll out a prototype next week, at the MacWorld expo in New York.

There is just one hitch: No one knows when the laptop will be ready to "ship", to be delivered to customers.

"That's the $64 million question," says Richard Doherty, president of the Envisioneering Group.

But he believes that, with its improved financial position, the company will be able to market the consumer portable more aggressively to teachers and lecturers.

And Banc of America's Kurt King adds: "Whenever a company introduces a product into a market where they were before vacant, it is an automatic boost to near term growth."

He warns, though, that consumer portables have not been a major market yet.

More than the Mac

Both Mr Mou and Mr Doherty believe that Apple is an attractive technology investment because it is much more than "pure-PC" companies such as Dell and Compaq.

[ image: The PowerPC and the Macintosh OS challenge Windows-Intel dominance]
The PowerPC and the Macintosh OS challenge Windows-Intel dominance
"They have a lot of rich areas that can improve the bottom line," says Mr Mou, pointing to its QuickTime multimedia technologies, its operating system and the Sherlock search technology.

"On the software front, they are doing particularly well, and they haven't really talked about it," he says. "The Sherlock 2.0 interface is quite powerful. I haven't seen anything comparable on the PC side."

Apple has long been criticised that its once state of the art Macintosh operating system has fallen behind the times. But the company is expected to release two more upgrades by next year, including the Mac OS X.

"Mac OS X is more of a fundamental revolution than any of the revisions so far," explains Mr Mou, and he thinks that it will help to sustain Apple's resurgence.

Long-term worries

But will the good times last?

Kurt King, the former pessimist, says that in the short-term Apple will continue to gain momentum.

"They offer a compelling alternative to Wintel", the computers based on Intel processors and the Windows operating system, and "they are going to be around in the long run," says Mr King.

And Apple has to contend with market forces. As average computer prices plummet, the company may be able to increase its market share, but not its revenue.

Mr King predicts that Apple will be forced to cut its prices and reduce its margins: "The real question is what kind of revenue growth the Mac platform can generate in the long run."

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