Apple Pegs Loss at $740 Million, to Cut 2,800 Jobs
As new Chairman and Chief Executive Gilbert Amelio insisted that the worst is over, troubled Apple Computer Inc. on Tuesday posted a worse-than-expected loss of $740 million for its second quarter and announced 2,800 layoffs, 1,500 more than projected.
The double dose of bad news, announced after the stock market closed, marked the biggest shortfall in the Cupertino, Calif., computer maker’s 20-year history.
While acknowledging the company’s past mistakes and their consequences, Amelio insisted Apple’s problems are correctable. “We’re not the first company to trip on our shoelaces . . . we’re in the process of dusting off and moving forward.”
Revenue for the second quarter, which ended March 29, was significantly down as consumers, concerned about Apple’s long-term viability, either delayed or canceled purchases. Revenue was $2.185 billion, an 18% decrease from a year ago. For the second quarter of 1995, Apple
reported a profit of $73 million, or 59 cents per share.
The size of Apple’s loss is larger than the $592 million in cash reported at the end of the quarter. Amelio said the company will take steps to improve Apple’s cash holdings, such as negotiating a long-term loan and selling off assets such as inefficient manufacturing plants. The company recently sold its PowerBook laptop computer manufacturing plant in Fountain, Colo.
Amelio said the company’s new strategy, which will be disclosed at Apple’s worldwide software developers conference May 13, will be to streamline its product line and focus on machines that carry higher price tags. Amelio hopes to use these high-end machines to boost profit margins to about 20% of revenue, compared with 9% for the quarter.
Analysts agreed that the worst is over for Apple. Tim Bajarin, president of Creative Strategies, a Santa Clara consulting firm, praised Amelio for taking aggressive action to put Apple’s financial house in order.
Apple had warned of the loss days after Amelio replaced fired Chief Executive Michael Spindler on Feb. 5, although it declined to specify the amount. In a follow-up announcement on March 27, Amelio estimated the figure at $700 million, an amount far greater than analysts had anticipated and a hint the layoff would be larger than the 1,300 stated on Jan. 17.
Inventory write-downs accounted for $388 million, allowing Apple to clear out warehouses of rapidly aging Macintosh personal computers, which remain unsold despite recent price cuts. As did many PC makers, Apple over-stocked inventory to prepare for holiday sales that never materialized.
Tuesday’s announcement reported that restructuring charges, most to be used as severance packages for furloughed employees, accounted for $130 million of the loss.
Apple’s woes have severely tested the loyalty of its once-faithful following. Retailers have reported slow sales despite recent promotions, and some large business customers have canceled or are reconsidering orders.
Los Alamos National Laboratory, which has 8,500 Apple Macs of its 20,000 personal computers, is contemplating whether to standardize on a single PC technology, most likely machines running Microsoft Corp.’s Windows operating system. “It is expensive to maintain two platforms,” Los Alamos spokesman Jim Danneskiold said. “The fact that their market share is slipping is certainly a factor.”
Sprint Corp. Chief Information Officer Greg Tolander recently decided his company would replace Macintoshes with Windows PCs.
Some loyalists think Apple will recover, although they concede it is unlikely to return to its former glory.
“I still think the Macintosh is the best solution for most people,” said Eliot Kaplan, owner of Integrated Solutions Ltd., a West Los Angeles computer reseller and president of the Los Angeles Macintosh Users Group. “No one would argue that Apple has problems, but they’ve been overblown and over-hyped by the media.”
