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Apple Profit More Than Doubles And Beats Analysts' Expectations By DAVID P. HAMILTON Staff Reporter of THE WALL STREET JOURNAL
Apple Computer Inc. again sprinted past analysts' profit projections in its fiscal second quarter, as accelerating sales of its iMac and Power Macintosh computers continued to fuel renewed optimism about the company's prospects.
Apple said net income in the quarter ended March 27 more than doubled to $135 million, or 84 cents a diluted share, from $55 million, or 38 cents a share, in the year-earlier quarter. The latest quarter's results included a $42 million nonrecurring gain, consisting of a $50 million gain from Apple's sale of two million of its 9.1 million shares in ARM Holdings PLC and a net restructuring charge of $8 million associated with manufacturing changes.
Company Profile: Apple Computer
Absent those special items, Apple's net income rose 69% to $93 million, or 60 cents a diluted share. Analysts had expected earnings of 57 cents a share excluding special charges, according to First Call Corp.
Apple sales rose 9% to $1.53 billion from the year-earlier period, a respectable but not earth-shattering revenue increase that roughly matched analysts' expectations. But unit sales of Apple's computers rose 27% compared with a year earlier, to 827,000 units, nearly twice the 14% growth estimated for the PC industry as a whole by International Data Corp.
Results Applauded by Analysts
Analysts applauded the results, which Apple released after stock markets had closed Wednesday. Investors, however, were skittish. Apple shares gained 90.625 cents to $35.5313 in trading on the Nasdaq Stock Market, but slid in after-hours trading to $33.75, according to Instinet Inc.
"They look pretty good," said Kevin McCarthy, an analyst with Donaldson, Lufkin & Jenrette. "Apple is free to focus on what it does best -- making great products for consumers."
The latest period is the sixth consecutive profitable quarter for Apple and underscores the steady turnaround of the Cupertino, Calif., computer maker under co-founder and still-interim Chief Executive Officer Steve Jobs. Not only has Mr. Jobs pulled Apple back from what he calls a "death spiral" in just two years, he seems to be winning back some market share from personal computers that use Microsoft Corp.'s Windows operating system and Intel Corp. microprocessors -- the so-called Wintel standard.
"I'm feeling really great about Apple right now," Mr. Jobs said. "The company is really firing on a lot of cylinders now."
Indeed, Apple now accounts for 13% of U.S. retail and mail-order PC sales, more than double its share from a year earlier, according to data from ZD Market Intelligence. "It's a really amazing impact they've had in just under a year," said Matt Sargent, a ZD Market analyst.
Apple, in fact, has enjoyed some of its greatest success attracting first-time buyers, particularly users who want easy access to the Internet. Apple said that 32% of iMac buyers during the quarter were buying their first computer and 11% were converting from Wintel computers. Analysts such as Mr. McCarthy credit much of Apple's popularity to the growth of interest in the Internet, which is equally accessible from both Wintel PCs and Apple's Macintosh computers.
Strong Demand for iMacs
"The Internet is the great equalizer," said Mr. Jobs, who likes to point out that 89% of new iMac customers use the Internet, compared with a PC industry average of less than 30%. "We are betting a lot of our future on the growth of the Internet."
So strong is demand for Apple's multicolored iMac computers that the company's distribution-channel inventories of the machines dropped to just under three weeks from five weeks, Chief Financial Officer Fred Anderson told a conference call. Mr. Anderson said Apple sold roughly 350,000 iMacs and 450,000 Power Macintosh G3 computers during the quarter. Sales of Apple computers rose in all major geographical regions, and soared 52% in Japan, a longtime Apple stronghold.
Product inventories at Apple itself fell to just one day, Mr. Jobs said. "You're seeing a company that's beating Dell [Computer Corp.] in operational excellence," he said.
Apple's results stand in stark contrast to those of industry leader Compaq Computer Corp., which shook the industry last Friday when it announced a sharp drop in its first-quarter profit due to intensified price competition and slumping high-end computer sales. For once, Apple seems to have benefited from its meager presence in the corporate PC market, where price cutting has hit companies such as Compaq particularly hard.
Analysts also are optimistic that Apple will continue to unveil compelling products as the year goes on. The company Wednesday announced a speed upgrade to its iMac line, unveiling a new machine based on a 333 megahertz microprocessor that will replace existing iMacs running at 266 megahertz. In the next month or so, analysts also expect Apple to introduce a new version of its PowerBook notebook computers. Apple officials declined to comment on unannounced products.
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