Over the past few years, Apple Computer Inc. has flummoxed its critics and thrilled its user base by venturing into new territory with products like the iPod and its .Mac online service and chain of mall-based retail stores.
Apple has explained the new ventures as tactics to sell more Macintosh computers -- which, after all, is how the company makes most of its money.
Last week, analyst Charles Wolf of Needham & Co. in New York issued a detailed report examining the potential of the iTunes Music Store.
Wolf estimates that once Apple has the Windows version of iTunes in place, the store could capture 20 percent of the pay-per-download market.
This could translate to $600 million in annual revenue and $50 million to $60 million in operating income, nearly equal to Apple's $65 million in profit for the 2002 fiscal year.
But more intriguing is Wolf's speculation that the iTunes Music Store could drive sales of the popular iPod still higher, which he sees as "a major income opportunity."
Should this come to pass, and it appears that all the pieces are falling into place, then Apple could earn substantial revenue from a business only peripherally related to its sales of Macs.
In fact, once the service is available for Windows, the bulk of Music Store sales won't depend on Macs at all.
Apple already has set the precedent with the iPod. More than half of all iPods sold are to Windows users -- which, along with the launch of the iTunes Music Store -- helped propel sales of the portable music player to 304,000 units in Apple's just-announced earnings report for the third fiscal quarter.
In his June report, Wolf cited statistics from IDC, a research firm based in Framingham, Mass., that the iPod already holds 51 percent of the market for music players with hard drives. Imagine what would happen when Windows users can access the Music Store.
"Apple is abandoning its strategy of confining its software to the Mac platform," Wolf said in the report. He also upgraded his rating on Apple's stock to 'buy" from "hold."
"This overdue move will enable it to target its digital entertainment products and services -- starting with the iPod and iTunes Music Store -- at the entire market, not just the 5 percent Apple currently addresses," the report said.
Although it sounds like the "digital hub" concept run amok, the idea makes sense for Apple. The truth is, sales of Macs have been stagnant for years.
Even with such products as the 12-inch and 17-inch PowerBooks introduced earlier this year, the Power Mac G5s expected to ship at the end of August, and the evolving Mac OS X, Apple is -- more or less -- stuck with a very limited market.
The company's revenue hovers around $1.5 billion every quarter, with unit shipments ranging from 700,000 to 800,000. Both are down from just a few years ago, when the popularity of the original iMac helped Apple bring in more than $2 billion per quarter while routinely selling more than 1 million Macs.
Apple hasn't been alone in seeking to diversify from computer hardware. As it became clear that the days of rampant growth and fat profits would never return to the PC industry, all the major computer makers have been pursuing alternative strategies.
Gateway Inc., beaten down by price wars with Hewlett-Packard Co. and Dell Inc., found some success last year selling plasma televisions in its Country Stores. This year, the company, based in Poway, Calif., said it would remodel its stores and would start selling more consumer electronics.
Even industry leader Dell, with headquarters in Round Rock, Texas, recently dropped the word "computer" from its name to reflect its increasing focus on servers and storage systems -- areas significantly more profitable than selling Windows-based PCs.
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