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July 15, 1998

APPLE POSTS $101M PROFIT, BUT REVENUES REMAIN FLAT

By CBR Staff Writer

Revenues were flat in Apple Computer Inc’s third quarter, posted after the market closed yesterday, but the company duly reported its expected third consecutive quarter of profits, easily beating analysts estimates of 33 cents a share and turning in net profits of 50 cents a diluted share, excluding charges and exceptional gains. Revenues for the third fiscal quarter ending in June were down slightly to $1.4bn from $1.74bn last year, but stayed level with Apple’s second quarter figures. Net profits were $101m (65 cents a share) compared with last year’s net loss of $56m (44 cents a share). The figures include a $7m charge relating to the acquisition of technology from Macromedia Inc back in May (CI No 3,403), and a gain of $33m made from selling shares at the IPO of ARM Holdings Plc in April. Apple still holds 25% of ARM, worth only $22m on its books but $230m at current share prices. Taking those items into account, profits amounted to $75m. Apple was still in the ramp up stage of production for its G3 Powerbooks during the quarter, and this along with lack of a consumer product line were blamed for the flat revenues. The new iMac, due to ship on August 15th, will fill the consumer product hole, it said. Gross margins went up to 25.7%, a three-year high, largely due to the product mix available for sale. Apple has reduced its product lines from 15 a year ago and is now on the way to just four main product lines, two of them available now. The iMac is the third. That simplification will help with inventory management and distribution costs, but will also result in lower margins next quarter as lower priced products start to ship. Unit sales will increase significantly over the next two quarters. Flagship G3 Power Macs accounted for 50% of the quarter’s product revenues and G3 Power Books a further 18%, while the All in One G3 Power Macs aimed at the education markets along with older products, accounted for 20%. The rest came from imaging, displays, software and services. Apple’s liquidity is very strong, with nearly $2bn in cash and short-term investments on hand. The US market is the strongest, with Japan stable and Europe expected to recover over the next few quarters once low- end products become available. All eyes will now be on how the iMac sells into the consumer market, and whether or not the new product will help it push its share of the desktop market back above the 5% mark that it recently dropped below. Apple says it won’t be until the December quarter before meaningful year on year revenue growth and unit growth shows up on the figures.

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