ZDNet UK / News and Analysis / Business of IT / IT Strategy

Apple meets lowered expectations

By Ian Fried, CNet, 17 July, 2002 08:10

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Apple, Flat panel, iMac, Finances, Sales, Schools, Steve Jobs, Macworld

NEWS
Apple Computer on Tuesday reported quarterly sales and earnings that matched analysts' lowered expectations as flat-panel iMac sales and sales to schools fell short of the company's initial hopes. The company earned $32m (about £20m), or 9 cents per share, on revenue of $1.43bn. In the same quarter a year ago, Apple earned $61m, or 17 cents per share, on revenue of $1.48bn Analysts expected Apple to report earnings of 9 cents per share, according to First Call. Apple warned last month that sales would be in the range of $1.4bn to $1.45bn, down from an earlier estimate of $1.6bn. The company said it expected earnings to be between 8 and 10 cents per share. Apple is forecasting that revenue for the current quarter will be roughly flat as the company tries to cut inventory amid a back-to-school shopping season that is likely to fall short of past years. CFO Fred Anderson said the company sees only a "slight profit" for the quarter, before charges, as profit margins are expected to decline. Apple said it shipped 808,000 Macintosh computers during the quarter, down 2 percent from the year-ago quarter. "Even in this extended worldwide downturn, Apple is continuing to be profitable and continuing to innovate," Apple chief executive Steve Jobs said in a statement. For the quarter, Apple said it shipped a total of 378,000 flat-panel iMacs, new eMacs and original G3 iMacs -- slightly more than the 372,000 iMacs it shipped in the prior quarter. Despite the larger number of products shipped, revenue numbers actually declined. Sales of all iMacs and eMacs generated $424m in revenue, down from $448m in the prior quarter. Shipments of Apple's iBook consumer notebook increased to 169,000 from 141,000 in the prior quarter, while shipments of the Power Mac G4 fell to 167,000 from 211,000 in the prior quarter. PowerBook shipments increased to 94,000 units from 89,000 in the prior quarter. In a conference call with analysts, Anderson said 80 percent of the shortfall came from lower-than-expected sales of the flat-panel iMac along with the PowerMac and PowerBook which are geared at business customers. "We were surprised and disappointed by the shortfall in these areas," Anderson said. As for the flat-panel iMac itself, Anderson said "demand slowed markedly in late May and in June". Concerned about a build-up in inventory, Anderson said the company slowed its shipments of the flat-panel iMac late in the quarter. Anderson said that excluding the new eMac, Apple saw a decline in the number of PCs in the hands of distributors and retailers at the end of the quarter as compared with the beginning. However, with demand slower, the amount of weeks' worth of inventory rose to 6.5 weeks. Anderson said Apple will work to get inventory pared to its target level of four weeks' to five weeks' worth by the end of December. Anderson said Apple's sales to schools also fell short of expectations, but said it believes its share of the US education market is holding steady at roughly 20 percent. Apple's shipments to education were 7 percent below the company's internal plan, Anderson said, and 17 percent below the same quarter last year. Anderson noted that IDC is forecasting an 18 percent drop in the overall US education market. "Education business in general continues to be soft due to declining tax revenue," Anderson said. Anderson said Apple also expects to take a charge in its current fourth quarter to account for recent layoffs in a Sacramento, California-area plant as well as possible further job cuts. "We may also due some additional limited restructuring during the fourth quarter," Anderson said. Anderson also said profit margins will take a hit in the current quarter because of looming price cuts in some areas, particularly Europe where the euro has been rising against the dollar. The earnings report comes on the eve of Jobs' keynote address at the Macworld Expo in New York, where he is expected to unveil larger-screen iMacs, among other new products.
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