Apple's core challenge: Revenue growth

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Apple Computer, the comeback story, is long gone. Now Wall Street wants to see the sequel: Apple, the growth story. Citing the familiar "what have you done for me lately" mantra on Wall Street, analysts are looking to Apple to show them how the company will post strong sales growth over the next two years. "Apple has transformed itself from a comeback company to a growth company," said David Bailey, an analyst at Gerard Klauer Mattison. Gone are the days where Apple was written off for dead. Chief executive Steve Jobs pared Apple's product line, refocused the company, killed its clone makers and led Apple back to its glory days with the iMac. Apple has also delivered quarter after quarter of eye-popping sales and earnings totals. The stock has responded accordingly as the company issued a two-for-one stock split in April, its first split since June 1987. When the company reports its fiscal third quarter earnings on Tuesday, there'll be a ho-hum feeling to them. Apple will report good sales, solid unit shipments and a nice profit of 44 cents a share, according to earnings tracking firm First Call In fact, Apple's success is so taken for granted these days that earnings are taking a back seat to the Macworld Expo trade show opening Tuesday in New York. Steven Fortuna, an analyst with Merrill Lynch, sees "a short-term trading opportunity" around Macworld as shares move in tune with Jobs' keynote speech. Earnings are almost an afterthought. It's rare that a trade show upstages earnings on Wall Street, but analysts are looking for a peek at what Apple will do for an iMac encore. Apple's secretive nature about product plans -- chief financial officer Fred Anderson has habitually said the company doesn't preannounce products -- creates a nice buzz around Macworld, but leaves Wall Street prognosticators in the dark. "Their biggest challenge is what to do for an encore product," said Walter Winnitski, an analyst for Chase H&Q. "New products drive revenue growth." Still seeking $10B in sales And revenue growth is the next phase. Despite hefty profits, Apple's annual sales haven't topped the $10bn mark since 1995. Winnitski said the company will need to refresh its current products and launch new ones to "find new users in new areas." Apple currently has four key hardware products -- the iMac, the PowerMac G4, the iBook and the PowerBook -- and has been crafty about adding a fifth, such as a personal digital assistant offering. Bailey said a Net appliance would be logical for Apple. Analysts also said they wonder how Apple will reach that psychologically important $10bn sales mark by relying mostly on the consumer market. The company fares well in its core verticals -- consumer, education and graphics design -- but hasn't been a player in the corporate space. The company is looking to boost sales to small and mid-sized businesses, or "places where they've been in the past", said Bailey. Go to Pt II/ Software-focused second half Take me to the Macworld Expo News Roundup What do you think? Tell the Mailroom. And read what others have said.

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