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Apple mulls still-better iMac sales

Having reported better-than-expected earnings, Apple outlines plans for a faster iMac and describes how the company has and will boost sales growth.

Apple's iMac is turning out to be the little computer that could--and still can--leading the company to examine ways to sell more systems directly to customers.

Apple Computer, which just posted earnings of $135 million for its See story: Apple extends profit streak second fiscal quarter, yesterday outlined plans to introduce a faster version of the desktop computer as executives described how the company has boosted sales growth.

As previously reported, Apple is now offering a 333-MHz version of the iMac in the same colors for $1,199, the same price as the previous 266-MHz version.

Meanwhile, Apple continues to boost market share and shipment numbers on the basis of the tub-shaped computer, which has remained essentially the same (save for processor speed and color) since its introduction in August of 1998. In a conference call, Apple said that it shipped 350,000 iMacs during the quarter, along with 400,000 of its revised PowerMac G3s.

During the call, Apple CFO Fred Anderson said that Apple's desktop market share in Japan more than doubled year-ago numbers, climbing over 18 percent, thanks to iMac sales. In terms of units shipped, growth was 52 percent in Japan, which has traditionally been a strong market for Apple.

Overall, Apple's shipments were up 27 percent, outpacing industry growth. The news is significant because the PC market was roiled earlier this week on Compaq's warning that its first quarter would not be up to snuff.

Better still, executives said, were numbers showing that Apple is increasing its installed base of customers by bringing first-time computer buyers into the fold. Anderson cited figures showing that 32 percent of second-quarter iMac sales were to first-time buyers, and 11 percent were "converts" from Windows-based machines. In Japan, the number of first-time buyers reached 46 percent.

"We're obviously very pleased to see the mix of first-time buyers being sustained at such high level," Anderson said.

Apple has yet to turn on afterburners
After having expressed concerns at the beginning of the quarter about Apple having excess inventory of unpopular colors on hand, financial analysts yesterday expressed concern that Apple had "left money on the table" by not having enough iMac's available during the quarter.

Anderson said that because of concern about iMac inventory, the company worked hard to reduce iMac inventory from an average of five weeks in the previous quarter to three weeks for the second quarter.

The sales results came even though retailer Best Buy, which Apple signed on specifically to target first-time buyers, didn't have any new multi-colored iMacs to offer customers. An Apple executive said Best Buy didn't order any computers in the second fiscal quarter, but that the both are working to relaunch the iMac. No specifics were offered by Apple on why Best Buy didn't order new computers during the quarter.

Industry sources said Best Buy balked at buying the iMacs in bundles of fives, citing concerns that they would be stuck with large inventory of unpopular colors. Apple today confirmed earlier reports by CNET that iMacs would now be sold in "eight packs," with four blueberry iMacs sold with each of the other four colors. The move could be intended to appease Best Buy on the inventory issue.

Apple going "more" direct?
Apple's Anderson also hinted at future plans to boost Internet sales, while declining to say just how well the online Apple Store was doing.

"We continue to increase our Internet presence. Our strategy is to continue to drive a higher mix of Apple Store sales," he said, noting that a new general manager had been hired, the Web site will continue to be modified, and a new telesales system is in place.

"We have the infrastructure in place to expand out Internet sales," Anderson said.

Computer makers such as Compaq and Apple have attempted to maintain a balance between selling direct to customers and selling through resellers. The direct sales model offers inventory management efficiencies--and more revenue for the manufacturer--but risks alienating the network of retail stores that promote one's products.

Compaq has run into snafus, but Apple's moves to increase direct sales have met with little public outcry. Apple has "done the best job of any of the PC companies in taking pages out of Dell's playbook and applying it to their company," said Lou Mazzuchelli, financial analyst with Gerard Klauer Mattison.

Financial analysts estimate the company is doing $1 million a day in sales over its Web site and through telesales directly to consumers. That compares to what Dell achieved in early 1997; it now does over $10 million a day in sales over the Web. Compaq, which has stumbled with its efforts to mix direct sales with a reseller model of PC distribution, recently claimed its is doing $2 million a day in direct sales of consumer and business PCs.

What remains to be seen, however, is how dealers will react to Apple's efforts to boost Internet sales beyond its current modest levels. Compaq has seen some resellers emphasize sales of other companies because the Houston-based PC maker is viewed as a potential competitor.