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Tuesday, October 17, 2006

Earnings Cheat Sheet- Apple Computer (AAPL)

By Yaser Anwar, CSC of Equity Investment Ideas

Apple shares have been on a tear over the past three months, as sales of iMac computers and iPod music players continue to cheer investors. The news hasn't been all good, however: The company announced the results of a stock-option review that, among other things, will likely prompt financial restatements.

Earnings Outlook: Analysts polled by Thomson First Call are expecting fiscal fourth-quarter earnings of 50 cents a share, compared with a year-earlier 38 cents, excluding tax-related gains of 12 cents a share.

Revenue Outlook: Apple in July projected $4.5 billion to $4.6 billion; analysts currently expect $4.67 billion. Revenue was $3.68 billion in the year-earlier period.

Key Issues:

• IPod sales: The beat goes on for the dominant music player. Analysts at Thomas Weisel peg iPod shipments at 8.6 million, up from the previous quarter's 8.1 million units and a year-earlier 6.5 million. There may be less buzz, however. The new iPods models unveiled last month didn't blow Wall Street away; plus, Microsoft's Zune will be muscling into a maturing market before year-end.

• Mac attack: Citigroup's Richard Gardner recently raised his revenue estimates for Apple, citing strong back-to-school results for its computers, especially Intel-powered MacBooks. The analyst is also optimistic about Apple's gross margins due in part to restrained computer-component costs.

• Option grants: The cloud hasn't lifted completely, as the SEC has yet to weigh in. But Wall Street seemed relieved to hear that, though suspicions were cast on former executives, CEO Steve Jobs and his current team hadn't engaged in "misconduct" as relates to the manipulation of grant dates for employee stock options.

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