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Apple's profits roll on

The company will announce its first profitable year since 1995, but many analysts question how long the momentum will last.

Apple Computer will trumpet its quarterly financial results in a special briefing this week and introduce new products in an effort to keep up momentum gained during its first profitable year since 1995.

As expected, the company will also announce Mac OS 8.5, a significant update to the current Macintosh operating system.

Now that the company looks to be stabilizing its financial situation after $1.2 billion in losses from fiscal 1996 to 1997, financial analysts are hoping to see other indicators that the company will be a good investment opportunity.

Financial analysts expect Apple to post its fourth straight profitable quarter in fiscal 1998, with estimated earnings reaching 49 cents a share for the latest quarter and $1.71 a share for its fiscal year ended last month, according to First Call.

Apple's last profitable year was fiscal 1995, when it earned more than $400 million on sales of $11 billion.

Beyond profitability, what analysts are looking for is year-on-year revenue growth and signs of a growing installed base of customers.

Unit sales should show strong growth due to the introduction of the iMac computer for the consumer market, where Apple had no offerings for almost a year before the August launch of the iMac.

Some market analysts expect that the company will announce that the iMac has been the most successful computer launch in the company's history. That distinction has to date been reserved for Apple's Power Macintosh "G3" desktop computers which launched in November of 1997 and sold 133,000 units in 51 days.

Lou Mazzucchelli, an analyst with Gerard Klauer Mattison who has a "buy" rating on the stock, previously said he expects the company to sell 250,000 iMacs for the current quarter.

Despite the upswing in sales brought about by the iMac, some analysts are more reserved in their judgement, saying that some questions remain unanswered about underlying factors in the company's performance that could give clues as to Apple's future earnings potential.

"The larger question for the stock is whether these are just the faithful buying their first Mac in a few years" or new users, said Mark Specker, a SoundView Technology Group analyst.

"It's still not clear where the significant growth opportunities are beyond the current replacement cycle," said Vadim Zlotnikov, an analyst with Sanford Bernstein, who has Apple stock rated at a relatively neutral "market perform."

"I do believe Apple has good quarters coming up. The question is how sustainable is this momentum," he noted.

Zlotnikov's measuring stick: Apple needs to demonstrate significant growth of the installed base. Apple needs to show that upwards of 35 percent of the iMac's buyers are new purchasers--a level attained by other PC companies such as Compaq Computer.

It "would be exciting" if Apple could show those numbers, he said.

Analysts say the company needs to show revenue growth, as well. Despite the third quarter profit, for instance, revenues declined 19.3 percent vs. the same period a year ago and were flat sequentially, as the company's production capacity was constrained because of the emphasis on iMac production. That situation was not fully remedied in the fourth quarter, with users facing a continued shortage of notebooks and a tight supply of some models of desktop computers.

Despite the shortage of higher priced products, analysts don't expect any significant impact on earnings, but revenue growth could be stunted. Zlotnikov estimates that revenues will decline 2 to 3 percentage points over last year, while the current revenue growth rate for many PC makers is in the 12 to 15 percent range.

Reuters contributed to this report.