Time for a bite of the Apple? Yes, say analysts

Now might be a good time to put the Apple back into the investor's cart.

Apple Computer Inc., rejuvenated by its invention of the market-leading iPod more than four years ago, on Wednesday posted a 48 percent surge in quarterly net income, fueled in large part by surging notebook computer sales.

Revenue from the sales of MacBook and MacBook pro notebooks jumped 61 percent to $1.16 billion from the year-ago quarter, a faster pace of growth than the 35 percent rise in sales of iPod digital music players to $1.50 billion.

It shows the importance of the notebook line in their business and the diversity of their product set, analyst Shannon Cross of Cross Research said of the rapid notebook growth. People are looking more at the Mac story and that's where the vast opportunity really lies.

It was the iPod that helped Apple's stock triple in 2004 and more than double in 2005, analysts said.

The market has not been as kind to Apple this year due to fears of slowing iPod sales; shares are down 25 percent year-to-date, based on Wednesday's close.

On Thursday, however, investors showed increasing confidence in Apple's ability to materially gain personal computer market share, sending the stock higher by 12 percent to $60.70. It is the biggest one-day percentage gain for Apple since October 14, 2004

Apple is well on the way to moving its entire computer line to using chips made by Intel Corp., from those made by its former chip partner, International Business Machines Corp.

Steve Jobs, the 51-year-old co-founder and chief executive of Apple, said in the company's earnings report on Wednesday that 75 percent of the Macs it sold in its fiscal third quarter had Intel processors.

This is the smoothest and most successful transition that any of us have ever experienced, Jobs said in the statement.

MAC UPSIDE

With more than 75 percent of the U.S. market for digital music players, there's limited room for growth in iPod market share. So to keep growing Apple needs to ensure that consumers who don't yet have a digital music player buy an iPod.

Where there is vastly more room for growth is in its original business, selling the Macintosh computers that are known for their sleek industrial design, ease of use, and robust package of software that comes included with each computer.

Apple ended the second quarter with 4.8 percent of the U.S. notebook and desktop computer market, up from a 4.4 percent share a year ago, according to IDC figures. That's still well below the 34 percent share that Dell Inc. commands and the 20 percent that Hewlett-Packard has chalked up.

Apple Chief Financial Officer Peter Oppenheimer cited market research firm NPD's figures that showed Apple doubling its U.S. notebook market share as measured by units to 12 percent in June from 6 percent in January.

We are increasingly optimistic about the potential for Mac to gain meaningful share in the back-to-school and holiday seasons while Microsoft Vista remains unavailable until January, wrote Merrill Lynch analyst Richard Farmer in a note to clients on Thursday.

Apple, which has in recent quarters given financial analysts have termed conservative, did it again on Wednesday.

Famously tight-lipped about new products, Apple said only that it has exciting future iPod products that it hopes to have on store shelves in time for the back-to-school and Christmas shopping seasons.

Judging by the surge in Apple's stock price on Thursday, investors share that confidence.

People are realizing that going into back-to-school and into Christmas is a really good time to own the stock because Apple is going to have good products coming out, analyst Cross said.