Apple Sees Record Profit for Quarter : Cost-Cutting Offsets Weak Holiday Sales at Computer Maker
Apple Computer had good news and bad news Wednesday: It will post a record profit in the current quarter, but Christmas sales are weaker than expected.
John Sculley, Apple’s president and chief executive, said net income for the first fiscal quarter ending Dec. 27 is expected to be about $52 million, or 85 cents per share--up 13% from the record results of the year-ago quarter.
Analysts called the strong financial performance a testimonial to Apple’s tough cost-cutting measures earlier this year, more than offsetting the effects of lower sales and price cutting.
Those actions, which slashed the size of the company by about 20%, have enabled Apple to ride out the personal computer slump in good financial shape, analysts said.
And Sculley predicted “significantly” improved profits next year, despite a flat market, indicating the company has downsized itself to match a market whose growth has slowed sharply.
Apple said it decided to issue a specific earnings projection because the outlook is brighter than investment analysts expected. A spokeswoman said: “We don’t want Wall Street to be surprised.”
Stock Closes Up
The first-quarter results, if achieved, would nearly equal the $1-a-share earnings predicted for Apple for all of fiscal 1986 by the California Technology Stock Letter, a San Francisco investment adviser.
Wall Street liked the news. In over-the-counter trading Wednesday, Apple stock closed at $22.25 a share, up $1.625. Analyst Jay Samstag of Duff & Phelps in Chicago said: “It’s positive. It’s a good quarter.”
It is the second consecutive quarter in which Apple, coming off a major restructuring and power struggle that led to the resignation of founder Steven P. Jobs, exceeded expectations of the investment community. As a computer industry slump deepened in June, Sculley eliminated 1,200 jobs--one-fifth of Apple’s work force--and announced the closing of three of the company’s six factories. The result has been sharply lower costs and improved profits with no gains in revenue.
However, Sculley’s comments Wednesday indicated that he doesn’t expect any big sales recovery next year. He said the fourth-quarter results “illustrate the ability of the company to become significantly more profitable on flat revenues in fiscal year 1986.” He also said the current quarter’s strong results “will be achieved, despite lower sales than last year’s holiday season.”
In November, Sculley told analysts that Apple expected to sell “at least as much product, if not more, during this Christmas quarter as we sold through last Christmas.”
Slashed Prices
It was unclear whether the shortfall is in computers sold or dollars realized. However, analyst Samstag noted that Apple slashed prices 10% to 35% in October, “and it looks like that didn’t impact their margins. That’s positive.”
“Apple Computer is healthy and strong,” said Sculley. “Our gross margins will climb to the highest level in over three years this quarter and our cash balance continues to increase.”
He said reduced overhead, expense controls throughout the company and “conservative inventory management” were the major reasons for the company’s higher gross margins and profits.
Unlike last Christmas, when it was left with thousands of unsold computers, Apple didn’t gamble by building up inventories this fall in anticipation of a holiday sales boom.
