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Technology Stocks : Apple Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Mark Palmberg who wrote (24073)	4/16/1999 1:26:00 AM
From: Moominoid	Read Replies (2) \| Respond to of 213177

Apple Still a Tasty Fruit The Motley Fool - April 15, 1999 12:34 April 15, 1999/FOOLWIRE/ -- Investors today shrugged off Apple Computer's (Nasdaq: AAPL) better-than-expected earnings, leaving the stock down $27/32 to $34 11/16. Second quarter revenues rose 9% to $1.53 billion thanks to strong iMac sales (350,000 units out of 827,000 total units shipped), which helped Apple grow overall unit sales by 27% year-over-year, or twice the industry rate. Excluding one-time items, earnings hit $0.60 a share, 58% better than last year and $.03 ahead of estimates. Gross margins rose to 26.3% from 24.8% a year ago, but were down slightly from Q1's adjusted 26.7% partly due to Powerbook price cutting, presumably in preparation for an updated line. Nonetheless, average selling prices rose to $1,813 from $1,776 in Q1. The results were just boringly terrific. Nothing to get really excited about, but nothing major to worry about. Indeed, CFO Fred Anderson agreed that weakness in the PC enterprise market is having little impact on Apple given that the company's professional sales remain largely limited to the publishing/design niche which it continues to dominate. Meanwhile, the consumer-oriented iMac is still flying off the shelves. ZD Scoreboard found the iMac claimed a 12.5% share in the retail market for February. Similarly, PC Data concluded that the iMac owned an 11.3% share of the retail/mail order desktop market for the first two months of the year, double the year-ago level. The iMac's market share in Japan, where overall Apple sales soared by 52%, reportedly rose to 18.4% from 7.4% a year ago. Half of Apple's sales come from international markets. What's more, about 32% of iMac buyers in the period were first time buyers while 11% are so-called converts from Wintel. In Japan, 46% are first-time buyers while 18% are converts. Part of the story here is that 89% of new iMac buyers are on the Internet, up from 82% last quarter. Though this is only a correlation, changes in the way consumers use computers may be helping the iMac gain market share. Of course, cute colors and cool advertising also helps. Though Apple makes much of the fact that inventories have plunged to an industry record low of one day, this stat really isn't comparable to direct-sellers like Dell (Nasdaq: DELL). Dell builds to order; Apple still builds for the channel. But Apple's management team seems determined to prove that the inventory problems of the past just won't happen again, even with the tricky prospect of producing five flavors of iMac where one (blueberry) is the favorite and the challenges of negotiating extremely quick product transitions (the 266 MHz iMac introduced at the end of December is already being phased out in favor of the 333 MHz). Still, overall channel inventory did fall to 4.8 weeks from 5.3 weeks as of December while iMac inventories fell to below 3 weeks from 5 weeks. Since Apple must price-protect this inventory, Apple is still operating a model that's a far cry from Dell's, but it seems to be operating it quite efficiently. Indeed, rather than worrying about channel stuffing, some analysts seemed concerned that Apple may be managing its business too tightly! What's clear is that demand, especially for the iMac, isn't a problem. Apple made its estimates despite the fact that #2 PC retailer Best Buy (NYSE: BBY) purchased no iMacs during the quarter (the companies are working to relaunch the iMac in Best Buy stores). Also, while the tighter management of channel inventory coincides with the introduction of the 333 MHz iMac and, presumably, new Powerbooks, it meant that Apple deliberately postponed at least $55 million in sales for the quarter, which amounts to at least two cents per share. Meanwhile, Apple has become a cash machine. Days sales payable rose from 51 to 64 sequentially while days sales outstanding declined to 48 from 49. Like Dell, Apple is operating with a negative cash conversion cycle (a record minus 15 days) meaning its suppliers are funding its working capital needs. The company ended the quarter with $1.97 billion in cash net of debt, or about $11.36 per share. With a new consumer Powerbook and other goodies in the pipeline, Apple could still do perhaps $2 a share, fully-taxed at 35%, for the year. Net of cash, it's trading at less than 12 times that FY99 estimate. by Louis Corrigan