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From Interactive WSJ.
Apple to Post Profit for Quarter;
Sales Fell, but Margins Improved
An INTERACTIVE JOURNAL News Roundup
Apple Computer Inc. opened the Macworld trade show in San Francisco with
a dose of good news Tuesday, surprising analysts by saying it will post a
profit for the quarter ended December.
Apple cited strong sales of a new line of computers, cost-cutting and other
efforts. The Cupertino, Calif., company said it expects to report earnings of
more than $45 million on revenue of $1.58 billion for the fiscal first quarter.
In the year-ago quarter, Apple reported a loss of $120 million, or 96 cents a
share, on sales of $2.13 billion, meaning Apple's sales in the most recent
quarter will be down about 25% from the year-ago figure.
Apple will officially report its results Jan. 14.
The consensus estimate of analysts surveyed by First Call had been for a loss
of around six cents a share. Wendy Abramowitz, an Argus Research analyst,
estimated Apple's profit to be about 36 cents a share based on the information
in a company press release.
"Clearly, a profit is better than what I was looking for," Ms. Abramowitz said.
Shares Gain 19%
Shares of Apple soared on the news, climbing $3.0625, or 19%, to close at
$18.9375 Tuesday on the Nasdaq Stock Market, after a early afternoon
trading halt for dissemination of the news. Shares of Apple also advanced last
week amid optimism that the struggling computer maker might make some
positive announcements at the show.
"We are thrilled that our new plans are beginning to work," said interim Chief
Executive Steve Jobs. Mr. Jobs announced the projected profit at the end of
his keynote speech.
Apple said it benefited from strong sales of its
Power Macintosh G3 computers, noting that
more than 133,000 units have shipped since the
G3's November debut, compared with an Apple forecast of 80,000 units.
Apple says the machines are faster and cheaper than equivalent PCs based
on Intel Corp.'s Pentium II chips.
Apple also credited its partnership with retailer CompUSA Inc. In the quarter,
CompUSA outfitted 57 of its computer superstores with Apple "store within a
stores," boosting CompUSA's Macintosh sales, Apple said. Apple said that
Macintosh sales rose to 14% of CompUSA's overall PC business, up from
3%, as a result. CompUSA expects all of its computer superstores to be
outfitted with the new Apple areas by February, Apple said.
First Profit Since 1996
A profitable quarter would be Apple's first since the period ended September
1996.
Meanwhile, Microsoft Corp. unveiled versions of its latest Internet browser
and its Office software suite for Apple's Macintosh. The Mac version of
Office 98 is expected to be available in March; Microsoft said Internet
Explorer 4.0 for Macintosh is available free on Microsoft's Web site and will
be included with Office 98.
The upgrade for the Mac version of Office is the first in nearly two years,
and talk is that it's better than the well-known Windows version in a few
ways. For one thing, it can automatically fix problems with files and folders.
Apple is also exhibiting upgraded software enabling Macs to run Windows
programs and is showing off some applications for Apple's next-generation
Rhapsody operating system. The company also plans to unveil improved
programs for graphic designers, publishers, artists and photographers, a key
market for Apple. Also, Apple unveiled version 8.1 of its Mac OS, and said
the updated operating system will be available in February.
Mac OS 8.1 also has an improved file system, built in digital video disk, and
other features. (Mac OS 8.0 users can download 8.1 free from Apple's Web
site or get the system on CD for $19.95.)
Possible Sub-$1000 Computer
Apple executives also said they are looking seriously at bringing out a
low-priced computer to compete in the sub-$1,000 marketplace. Analysts said
such a move would indicate that Apple was interested in aggressively pushing
back into the consumer market.
Analysts were taken aback not only by the news that Apple would make
money in the quarter but also by the fact that the company announced its
newfound profitability in the middle of the trading day, without warning.
"This is not your normal way of disclosing financial information," said Walter
Winnitzki, an analyst at PaineWebber Inc.
Added Andrew Neff, an analyst at Bear Stearns & Co.: "One always takes
into account getting surprised by a Steve Jobs speech."
Mr. Neff, who has rated Apple an "attractive" stock since late last summer,
said he hadn't expected the company to make money this quickly. "The key
for Apple was to stabilize, and step two was to break even: It looks like
they're well into step two," he said, adding that the next step is for the
company to "develop a growth plan."
Tim Bajarin, an analyst at market-research firm Creative Strategies Inc., said
one key to the company's performance was the absence of Macintosh clones,
which were beginning to erode Apple's sales before Mr. Jobs quit licensing
them.
Mr. Winnitzki said that although sales appeared to have slowed in the first
quarter from the fourth, the magnitude of Apple's cost-cutting and
gross-margin improvements "have taken everyone by surprise."
Some analysts cautioned that much of the profit didn't represent a
fundamental revival in Apple's business.
"They did what they had to do to get there," said Jean Bozman, an industry
analyst with International Data Corp. "Let's not forget they had to lay off a lot
of people."
Good News for Loyalists
For Apple loyalists, the good news came as a welcome change from a
drumbeat of pessimism. In recent weeks, analysts have pointed to Apple's
plodding search for a new chief executive officer as a indication of how
precarious Apple's situation is. Some recruiting experts have said Apple will
have a hard time recruiting top-notch candidates as long as the mercurial Mr.
Jobs is around.
Apple last month confirmed that it wouldn't have a new CEO in place in time
for a Macworld announcement; until the admission, Apple had publicly
maintained that it hoped to have a new CEO by the end of 1997.
On Tuesday, Executive Vice President Mitch Mandich said the search has
not been as easy as the company anticipated six months ago. That difficulty
has left Mr. Jobs putting in a 40-50 hour work week at Apple, he added.
"He's actually been full-time -- more than full-time."
Mr. Jobs showed little patience for the issue in an interview with CNBC
Tuesday. When asked if he had ruled out the idea of taking the chief
executive post on a permanent basis, Mr. Jobs rose from his seat, removed
his microphone and said, "We agreed we weren't going to talk about this."
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