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Apple Computer: iCraze?

Apple Computer (AAPL) pleased investors with strong December-quarter sales of its iPod digital music player on Wednesday. But the real news for Apple, according to analysts at some investment firms, is that the popularity of the iPod appears to be contributing to sales growth of Apple's personal computers.

"We could be seeing the first signs of an iPod halo effect," say analysts at Prudential. Prudential notes that Apple's personal computer sales "grew at almost twice the industry rate of growth for the quarter."

Fueling analyst's enthusiasm for Apple is the recent introduction of the Mac mini, a desktop computer priced at just under $500. Needham analysts say that this entry-level machine should help win over Windows iPod users who have considered switching to Macintosh but have hesitated because of price.

"We believe the Mac mini will increase the percentage of iPod-toting Windows users who purchase a Mac by almost three-fold," Needham says. "And Apple's easy-to-use software should keep them there, creating an enduring stream of upgrades."

Needham analysts upgraded the stock to "buy" on Wednesday before Apple's earnings announcement. Following the report, analysts raised their 2005 earnings per share estimate by 35 cents, to $1.85.

Banc of America analysts upgraded the stock to "buy" on Thursday, also citing improved potential for personal computer growth. Analysts add that Apple could lose up to 5% of market share in digital music players from 2005 to 2006, but the company is "well positioned" to remain a leader in overall digital home media.

Although Goldman Sachs analysts raised their earnings estimate for 2005, they aren't getting too excited about Apple just yet. Analysts say that a quarter not influenced by seasonal consumer purchases will be the real teller of whether the iPod is helping improve Mac sales.

"With the frenzy around AAPL back in force," Goldman Sachs says, "we are hard pressed to suggest stepping in now with fresh money." Analysts maintain their "in-line" rating for the stock.

At $70, Apple trades at 36 times the 2005 consensus earnings per share estimate of $1.96 (fiscal year ends in September), according to Thomson First Call.

--Lisa Dixon

Apple Computer Click for larger chart Today's quote Use Stock Finder to make your own stock picks Last closing price: $219.08 200-day moving av.: $180 3-yr. annual return: 36% Trailing 12 mo. P/E: 27 Forward P/E: 33 Price-to-book ratio: 6 Price-to-sales ratio: 24.10 5-yr earnings growth: 53% PEG ratio: 0.00 More