Apple’s Profit Plunges; CEO Breaks Silence

Times Staff Writer

Apple Computer Corp. reported sharply lower fiscal second-quarter earnings Wednesday, though the news took a back seat to continued speculation about the company’s interest in buying Vivendi Universal’s music division.

Chief Executive Steve Jobs broke his conspicuous silence with a cryptic statement that amounted to a non-denial denial of reports that Apple is mulling over a bid for Universal Music Group, the world’s largest music company.

“Apple has never made any offer to invest in or acquire a major music company,” he said.

But Jobs didn’t dispute the reports that Apple and Vivendi have been discussing a deal since December. Apple has reviewed Universal’s books, and sources said it was considering offering $5 billion to $6 billion.


Jobs’ statement came after Vivendi board member Claude Bebear told Bloomberg News that Apple “will probably make an offer for the music business, for about $6 billion.”

A spokesman for the French conglomerate subsequently denied that Bebear had remarked on the negotiations, though Bloomberg noted that there were two reporters in the room.

The Apple chief moved quickly to disclaim Bebear’s comments.

“The press statements this morning attributed to Vivendi board member Claude Bebear are untrue, as Mr. Bebear has confirmed in a later report,” Jobs said. “Beyond these comments, we will abide by Apple’s policy of not commenting on rumors.”


Apple could buy all or part of Universal Music Group, home to artists U2, Shania Twain and Luciano Pavarotti. The most recent negotiations focused on a proposal to buy the entire company.

But people familiar with the negotiations cautioned that the deal could unravel over unresolved elements. Apple, for instance, wants to pay much less for the music unit than Vivendi hopes to collect, sources said.

If Jobs decides to make a formal bid, he is unlikely to do so until after Apple launches its online music delivery service April 28, sources said. Apple’s digital downloading service would feature songs from all five major record companies.

Apple Chief Financial Officer Fred Anderson declined to say anything specific about Universal during a conference call with analysts Wednesday to discuss the Cupertino, Calif., computer maker’s second-quarter results.


“From time to time, the company over the last several years has made small acquisitions, particularly of software companies where we felt there was a strategic fit and that such an acquisition or investment could assist in the profitable growth of the company and enhance shareholder value,” he said.

The company’s earnings for the quarter plunged 65% to $14 million, or 4 cents a share, compared with $40 million, or 11 cents, in the year-earlier period.

Revenue was down slightly to $1.48 billion from $1.5 billion.

Third-quarter revenue probably would be flat, with a slight profit, Anderson said.


Apple shares, which fell 15 cents to $13.24 in regular Nasdaq trading Wednesday, dropped an additional 17 cents to $13.07 in extended trading after the earnings release. The stock has dropped about 8% since the talks with Vivendi were revealed.

“I think the biggest issue here is not likely the price for the music group as much as a strategic question: Does Apple really want to get into the music content business?” said Robert Cihra, a computer analyst with Fulcrum Global Partners who does not own any Apple shares.

“I don’t personally think it necessarily would make a whole lot of sense, although you never know what Steve Jobs has up his sleeve,” Cihra said. “He may feel as though he has a strategy to monetize the digital delivery of music content better than anyone is able to, to date.

“But it’s likely to be a tough sell to Apple shareholders, thus the negative reaction in the stock price,” Cihra said. “Clearly, it would take Apple in a whole new direction and in fact make Apple more of a music content company than even a PC company.”


Lou Mazzucchelli, an Apple shareholder and a partner at Ridgewood Capital Corp., which manages about $300 million in investments, said the company’s second-quarter results were better than he expected.

Apple’s profit, though meager, was twice the consensus of analysts polled by Thomson First Call.

“Given the pretty awful environment, I think they are holding up well,” Mazzucchelli said. “They have been spending a lot on research and development, and they’ve brought out several new products.”

Times staff writer Chuck Philips contributed to this report.