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Needham Cuts Estimates for Apple Computer

Apple Computer (AAPL) shares fell after the computer maker first-quarter earnings per share of 17 cents, vs. a 2-cents loss a year ago. Apple sees second-quarter EPS of 8 cents to 10 cents. Needham cuts estimates.

Analyst Charles Wolf says first-quarter revenue and EPS was above consensus on strength of notebook and iPod sales; but gross margin was light and its outlook was weak due to changing product mix. He says the company is finally growing revenues at a material rate, but not showing improvement in operating margins. He says expenses are rising faster than anticipated due to slow erosion in gross margin.

Wolf raised $7.16 billion fiscal 2004 (ending September) revenue estimate to $7.46 billion, but cuts 55 cents EPS estimate to 50 cents due to lower gross margin. He kept a buy rating and $27 price target on his view that the company should emerge as a solid growth story going forward.

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