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October 14, 1998

APPLE ANNOUNCES FIRST PROFITABLE YEAR SINCE 95

By CBR Staff Writer

Apple Computer Inc posted another profitable quarter and finished its first profitable year since 1995. The resurgent company posted fourth-quarter net income of $106m, or $0.68 per share, blowing away estimates of $0.49 and shining compared to a year- ago loss of $161m. Revenue slipped 3.6% to $1.56bn. For the year, net income was $309m, or $2.10 per share, on revenue down 16.1% at $5.94bn, against a loss of $1.1bn last year. The success story of the quarter was the recently-introduced iMac, of which it shipped 278,000 units in the first six weeks of availability. Overall unit shipments in the quarter increased 28% from last year – it first such unit growth in years – and inventory dropped to $78m, or six days. That level represents 61 turns per year, compared to just 33 at the end of the June quarter, prompting the company to boast that it’s ahead of even Dell Computer Corp in that area. That allowed the company to take advantage of falling component prices, and gross margins for the quarter jumped to 26.8% from about 20% in the June quarter. The iMac was important for other reasons, as 40% of its buyers were new customers for Apple, with 29.4% having previously owned neither a Wintel PC nor a Macintosh, and 12.5% were converts who owned Wintel PCs. Apple said it ended the quarter with a healthy backlog of iMac orders, but it wouldn’t get more specific than that. Looking ahead, next quarter the company expects another year-over-year increase in unit and revenue growth, but margins will be down slightly as the iMac accounts for more of the mix. Expenses will also increase by about $25m – $30m sequentially due to increased holiday marketing activity for the iMac and the launch of Mac OS 8.5, which ships worldwide this weekend. Significant revenues are expected from the operating system upgrade, but no target figures were divulged. For fiscal 1999, Apple aims to grow revenue above the industry average, maintain margins above 23% and keep expenses to 18.5% of revenues. Inventory turns above 50 are expected to be sustainable. Apple also announced it was expanding its channel distribution to include Best Buy Co Inc as a national retailer, in addition to its existing relationship with CompUSA Inc. Apple ended the quarter with five weeks of channel inventory, down a week from the preceding quarter. The company upped its headcount by about 300 in the quarter to 9,660 as was needed for iMac production. On the liquidity front, cash and short term investments increased 58% to $2.3bn.

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