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Apple on a roll as notebook optimism builds

Apple shares are surging today as excitement builds for Macworld, the upcoming consumer notebook, and next week's quarterly earnings report.

Apple shares hit a six-year high today as excitement builds for Macworld, an expected consumer notebook, and next week's quarterly earnings report.

Apple Computer's shares closed at 54.50, a 9.27 percent gain over yesterday's previous 52-week high of 49.86.

Apple shares are at their highest level since 1993, when the first signs of major trouble at Apple began appearing in the form of huge quarterly losses that kept recurring like a nightmare until the company finally righted itself in 1998.

The company is now looking to post its seventh straight quarterly profit since the return of co-founder and interim chief executive Steve Jobs. Apple is expected to earn 64 cents a share for its fiscal third quarter, according to consensus analyst estimates from First Call. Expectations have been on the rise since April, when analysts polled by First Call predicted an average of 61 cents a share for the quarter.

While expectations of profits for the next earnings report--which will be released Wednesday--are contributing to the rise, other factors are pushing the stock as well.

"The general theme is that the product line is very strong," wrote BancBoston Robertson Stephens analyst Alex Mou. "It will be probably the strongest lineup ever going into next fiscal year. Also, there are two major operating system upgrades coming up." Mou raised his rating on Apple stock to "buy" from "long-term attractive."

Consumer portable up next
First up is Apple's consumer portable, which will likely be shown off at the Macworld Expo trade show, running from July 21 through 23 in New York. As previously reported, the new notebook will come in a variety of colors like the iMac and contain a 10-inch screen or larger, according to industry sources. However, the notebook is not expected to be available for sale until a later, as yet unknown, date.

Later in the year, Apple is expected to come out with a new generation of the popular iMacs with larger screens, and the company may even re-enter the handheld market with its own branded Palm device, said sources.

In the near term, however, the notebook will be the main focus. The product will likely sell for between $1,200 and $1,500 and will compete against discount consumer notebooks that have already been released by major PC makers.

To keep costs down, Richard Doherty, president of Envisioneering Group, said sources close to Apple have told him that the company has been working on a "single-chip iMac," somewhat akin to the system-on-a-chip movement among "Wintel" manufacturers.

Under this strategy, Apple is working on integrating as many formerly discrete functions of the chipset onto a single piece of silicon to reduce manufacturing cost and complexity, he said. Technology for managing system memory, networking, and other input/output functions are said to be on the list of items that are being integrated. Unlike true system-on-a-chip designs, the functions aren't on the same chip as the Power PC processor.

By next year, Doherty predicts that the graphics chip could be integrated onto the same chip as all of these other functions.

Integration has its ups and downs. PC makers in the Wintel camp can already buy integrated processors or chipsets which fuse various combinations of graphics, audio functions, communication functions, and memory control into the processor or chipset. These parts cut costs, but have also been beset by product delays, performance hits, and the occasional bug.

Analysts eyeing other assets, too
Apart from sales of new hardware, which are going well, Mou said sales of software should boost Apple starting in the fall. The company plans to release an upgrade to its current Macintosh operating system and by early 2000 will release an all new operating system called Mac OS X, both of which should provide a significant boost to profit margins.

"People are looking at a company that is valued as a PC hardware company, but this is really a systems company," said Mou.

The company has other software assets, such as its Sherlock search engine technology and the QuickTime multimedia software, which are not being valued properly, Mou said. Counting future earnings prospects and its other assets, Mou issued a 12-month target price for Apple stock of $75.

Lou Mazzucchelli, a Gerard Klauer Mattison & Company analyst, told Reuters that he wouldn't be surprised if Apple were to announce a stock buy-back plan when it announces its third quarter earnings.

Bloomberg contributed to this report.