New iMacs Likely at MacWorld

Assuming Apple Computer Inc. comes through with an appealing new iMac line at MacWorld in San Francisco,
calendar 2002 could signal a resumption of growth for the company, according to Goldman Sachs & Co.

GS analyst Joe Moore said Friday that a rejuvenated iMac lineup could spark 50+ percent revenue growth in the line.

“How significant could the new iMac be in terms of rejuvenating sales?” Moore asked. “We’ll probably get a better sense when we see
the product and are able to gauge the price points. But assuming that the product hits the right price points and segments of the
market, our current estimates of 1.775 million units for calendar year 2002, 53 percent growth from 2001, seem conservative; this
would make 2002 the second worst iMac year since the 1998 launch. Further, our assumption for calendar 2002 that prices will be
roughly stable seems conservative, since the price points of a flat panel based desktop will clearly be higher, so consumer desktop
revenue growth could be over 60 percent this year.”

Of course, not all analysts are so optimistic. A study by Morgan Stanley analyst Gillian Munson, released last month, found that Apple shares slipped by an average of 19 percent three out of the five times Apple launched a new computer since 1997.

Why? The argument goes that Apple’s world-wide market share has rested about 5 percent for the past few years, with its market niche filled mostly by educators (though it has lost ground to Dell in that market), graphics professionals and musicians. While the niche tends to be very dedicated to Apple’s products, the company has not been able to bring in large numbers of new customers. Therefore, while new Apple products — which have a reputation as innovative and cutting edge — tend to generate a lot of buzz, they don’t necessarily sustain long-term sales.

But Moore argued that a new iMac line could do very well for the company, even if it doesn’t expand the installed base.

“Certainly [expanding the installed base] is a key, and to some extent uncertain, objective, but keep in mind that even without expanding the installed base, the iMac should drive substantial acceleration in sales,” Moore said.

He noted that the late 1998 launch of the first iMac drove sales of 1.64 million units in the first 12 months and 2.07 million units in the second full year. By 2001, with minimal incentive to upgrade, sales dropped to 1.21 million units.

However, Moore tempered his enthusiasm somewhat based on the outlook for the PowerMac, the professional desktop line, which he said
is likely to remain weak based on the corporate buying environment. He also noted that December quarter is unlikely to have shown
much upside, especially in the face of a stale consumer desktop product and the need to clear out inventory in front of any first
quarter 2002 product launch. He projected earnings per share of 10 cents on revenues of $1.4 billion.

Still, on the positive side, Moore noted that MacWorld, which opens its doors Monday, is likely to have some significant surprises.

“The company’s aggressive promotion of MacWorld on its Web site (featuring daily messages such as ‘Beyond the Rumor Websites. Way
Beyond,’ and ‘To go where no PC has gone before’) probably indicates that there is another important hardware product to be
announced, probably another ‘digital lifestyle’ product such as the iPod MP3 player which was announced last quarter,” Moore said.
“We’re not going to add to the frenzy of speculation in the Mac community; clearly, there are enough wild theories out there that
nobody really knows. But as we commented immediately after the iPod launch, we like the idea of Apple using its strong product
design capability to drive several of the other computing lines. Finally, we should also see several new developments on the
software side, again focused around the company’s digital lifestyle strategy.”

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