Losses take big bite out of Apple

Things have gone from bad to worse for Apple Computer. Much worse.

The company today announced that it expects to report a staggering $700 million loss for its second quarter ending March 29, a figure that dwarfs the $69 million shortfall it declared last quarter.

Apple chairman Gilbert Amelio attributed more than half of the loss to unsold inventory sitting idle in warehouses and another $175 million to restructuring charges.

The Apple chief, who was recruited from National Semiconductor last month to head the beleaguered company, said he expects to announce major changes to reverse the decline by early May.

The second-quarter loss translates to a drop of about $5.70 per share. But Amelio reassured investors and users that Apple's problems can be resolved.

"The inventory write-downs and restructuring charges are critical first steps in orchestrating the comeback of the company," Amelio said in a prepared statement where he identified manufacturing errors as the main culprit. "I'm confident at this point that I know what the problems are and that they are fixable. We plan to aggressively address these issues and take the necessary corrective actions."

But Wall Street appeared divided on whether Amelio could make good on his promises. Even before the announcement, Moody's Investors Service yesterday downgraded Apple's bond status to a junk-bond rating in anticipation of the second-quarter loss and continued pressure on profitability for the next 12 to 18 months. The company is still reviewing the rating for a possible further reduction.

At the same time, Apple stock actually rose after today's announcement to close at 25-1/4, up 1-3/8 points--apparently a reflection of Wall Street's faith that it can't get any worse.

"If you're looking at a long-term investment, it's a good idea to stick with it and see where it goes. It also might be a good opportunity to buy while it's so low," one Dean Witter broker said.

John Venator, executive vice president and CEO of the Computing Technology Industry Association, agreed that the loss spells bargains for investors and consumers. "Now is the right time to buy Apple," he said. "You should probably also take advantage of the good deals on Apple software and hardware that will come out of this announcement."

It was Apple's first-quarter loss of $69 million that prompted its board of directors to oust former CEO Michael Spindler in favor of turnaround artist Amelio. When Amelio joined Apple, he said he would take about 100 days to diagnose the company's business and warned that more losses would be posted for this quarter, an Apple spokesperson said today. But last week, financial analysts were expecting losses closer to $200 million, a full half-billion dollars less than the actual announcement.

But the company's lack of specific plans to halt the hemorrhage means that investors in Apple technology and Apple stock may still expect more surprises before the company rights itself--or not.

"There has been a team of people working with [Amelio] analyzing every aspect of the business, and none of that has been finalized yet," said an Apple spokesperson.

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