Apple Expects to Post Loss for Holiday Quarter : Computers: Although sales increase, discounting cuts into profit margin. Layoffs are anticipated.
Stung by surprisingly weak holiday sales and fierce price competition, Apple Computer said Friday that it expects to post a loss for the current quarter and is undertaking a top-to- bottom review of its operations.
The bad news sent Apple shares tumbling $3 to $35.25 on Nasdaq and renewed speculation that Chief Executive Michael Spindler might be fired. The company is also expected to announce major layoffs soon, with analysts predicting that anywhere from 500 to 2,000 of Apple’s 13,000 employees will be let go.
It is unclear whether Apple’s problems reflect a broader softening of the PC market. Technology stocks have been falling in recent days on fears of slowing PC sales, and Intel recently reported that a major customer--widely believed to be Packard Bell--has had trouble paying its bills. Some electronics retailers, moreover, have said Christmas sales so far are disappointingly slow.
But many PC vendors remain optimistic and say sales are meeting expectations.
Apple said in a statement Friday that although revenues and the number of units shipped will rise in its fiscal first quarter, the increases are falling short of internal projections. And price cuts of 15% to 25% announced earlier this month will further erode Apple’s profit margin: gross margins were 20.7% in the last quarter, already quite low.
“Our anticipated results for the first quarter are obviously disappointing,” Spindler said in the statement. “We are currently engaged in an intensive review of all aspects of our business, including the factors contributing to our first quarter results, and will take appropriate actions to address the challenges.”
In the first quarter of last year, Apple earned $188 million, or $1.55 a share, on revenues of $2.83 billion. For the current quarter, Wall Street analysts had been predicting earnings of around 80 cents a share.
Apple has been coping with a series of problems this year, including an internal power struggle that contributed to the departure of four senior executives and poor forecasting that left it with a big order backlog during the fall. Now, some analysts say more bad forecasting has produced the opposite problem.
“There’s a possibility they were betting too heavily on the older products,” said Stephen Dube, an analyst with Wasserstein Perella Securities in New York. He said Apple may have focused too much on cheaper, entry-level versions of its flagship Macintosh, when consumers really want systems that use the more powerful versions of the Mac’s new Power PC microprocessor.
Dube said he was “not shocked, but surprised,” at Apple’s announcement, and that it remained unclear whether it was a broader portent. “This is turning out to be a very funny Christmas seasons for all computer manufacturers. Almost everyone is facing some uncertainty.”
Martin Ressinger of Duff & Phelps Investment Research in Chicago said he didn’t believe Spindler was in any immediate danger of losing his job. “It’s always too easy to blame the CEO,” he said.
Apple must decide whether it should continue with bruising price-cutting of the mainstream PC markets or focus on its traditional strength niches of graphics, publishing and education, Ressinger said.
“There are some positives would like to see them capitalize better,” he added.
Dube said he expects Apple to recover sometime next summer, when computers based on the so-called Common Hardware Reference Platform begin appearing. The new design will enable the machines to run software operating systems other than the Macintosh, and will also make it easier for other companies to produce Macintosh clones.
“The platform is still very viable,” he said.
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No Holiday for Tech
Technology stocks plunged again on Friday after Apple Computer warned that it will lose money this quarter, adding to mounting concerns that the personal computer industry’s growth rate is decelerating. The Standard & Poors’ semiconductor stock index now has tumbld 22% since late July, while the S&P; computer stock index has dropped nearly 10% just since late October. Many individual semiconductor and computer stoks have fallen more sharply. Monthly closes for the S&P; indexes, and latest:
S&P; semiconductor index: 288.88
S&P; computer index: 176.18
* Source: Bloomberg Business News
