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May 27, 2005

Apple: Investor Focus May Be Shifting To Macs

I was surprised by the market's strong response to the news story that Apple Computer (AAPL) was considering using Intel (INTC) chips in future Macs. I think part of the upside was short-covering as the stock was gapping up above its highs since the collapse after the last quarterly earnings report. The gap up also brought the shares back above their 50-day moving average for the first time since April 13, the day after the earnings report...

....However, what I really think was going on was a shift in the Apple debate from digital music to the "halo effect." AAPL shares bottomed on May 11, the day after Yahoo! (YHOO) announced its Yahoo!Music initiative under a subscription model. On that day, AAPL closed well off its lows on huge volume exceeded only about five times this year. So that was likely the day that fears about iPod volumes and the digital music market share peaked.

Lost in the postquarter selloff was the fact that Mac sales rose over 40% against single-digit growth for the entire PC market. Now a story leaks that AAPL is considering using INTC chips and may be pretty far along in porting its operating system to the INTC platform. I think the market is finally starting to give respect to the halo effect thanks to the INTC news.

The AAPL-INTC story leaked right when consumers have opened their minds to buying a Mac. According to analysts, AAPL could lower prices considerably and possibly upgrade speeds in laptops if it shifted to INTC chips. This would close a perceived value gap faced by Macs. I say "perceived" because I've read that comparing processor speeds between Macs and Intel machines is not really comparing apples to apples (sorry). Imagine if Apple Stores, flooded with people looking at iPods, have a new low-priced tier of machines to choose from.

I suspect that any issues with iPod shipments or inventory will still rattle AAPL shares. However, we may have shifted toward Mac shipments as the key determinant of trading levels in AAPL shares. The focus of investors will be no less intense with every wiggle in shipments being exaggerated in the stock price. If the focus has shifted to Macs, I think the recent strength in AAPL shares will be sustained and extended as I am a believer in the halo effect.

Posted by Steve Birenberg at May 27, 2005 10:53 AM