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Apple drops despite big profits

Shares of Apple continue to fall in early trading despite the announcement yesterday from the company that it posted $106 million in profits.

Shares of Apple Computer continued to fall in early trading today despite the announcement yesterday from the company that it posted $106 million in profits on $1.56 billion in revenue for the fourth fiscal quarter, beating analysts' estimates and finishing its first profitable year since 1995.

Apple stock was down 1.67 percent or 63 cents, to $36.75. The stock, which initially traded higher after the news, closed down $1.375, or 4 percent, to $37.375 on the Nasdaq Stock Market yesterday.

"I think people were just taking some profits," said Daniel Kunstler, an analyst at J.P. Morgan Securities.

As earlier reported, the PC maker earned 68 cents Apple at a glance per share for the latest quarter, topping Wall Street estimates of 49 cents per share. For the like quarter a year ago, Apple posted a loss of $161 million or $1.26 per share.

For the latest quarter and full year, Apple's revenues fell, however, compared to comparable figures for last year.

Shares of Apple, which initially traded higher after the news, finished yesterday down $1.375, or 4 percent, to $37.375 on the Nasdaq Stock Market.

As for the better-than-expected quarterly profit, "We are really pleased with this," said interim chief executive Steve Jobs in a special briefing at the Flint Center in Cupertino, California.

In the first six weeks, Apple sold 278,000 iMac units in North America, Europe, and the United States, Jobs added. Three of every ten iMac customers are new to the market, he said. About 12.5 percent of buyers are "Wintel" customers, according to Apple.

"We could not be happier with the initial iMac results," Jobs said. "We think we got the pump pretty primed."

"First-time computer buyers are very important because they are buyers entering the market that don't own a Mac or PC," Jobs said. "It's very important, because we want to get a share of those [users] above and beyond the Mac family. It's the most important customer we can get."

According to results from surveys conducted for Apple by research firm Audits and Surveys, 29.4 percent of those purchasing iMacs are first-time buyers.

"If Apple had just added to their installed base the story wouldn't be so powerful," said Rick Schutte, an analyst at Goldman Sachs.

Financial analysts have said that if the company could show that 35 percent of the iMac's buyers are new purchasers--a level attained by other PC makers such as Compaq--the company has a better chance to remain profitable in the future.

Best Buy back in the fold
Apple also said it is broadening its national distribution for the iMac, adding retailer Best Buy. "We are going to be in their 300 stores on November 8," Jobs said. Apple also has beefed up its distribution for iMac in the United Kingdom.

In February, Apple stopped distributing computers to Best Buy, because it said the retailer had not committed enough resources to sales of Macintosh products.

At the time, Best Buy said Apple hardware sales accounted for a one-half of 1 percent of its total computer transactions to its core market of consumers. But with a popular new consumer system to offer consumers, Apple wanted Best Buy back as a distributor because the company sells one out of every three new PCs in markets where it has a store, Jobs said yesterday.

Financial analysts had expected Apple to post its fourth straight profitable quarter in fiscal 1998, with estimated earnings reaching 49 cents per share for the latest quarter, which ended September 25, and $1.71 per share for its fiscal year, according to First Call.

As expected, Jobs also said Apple was introducing Mac OS 8.5, a significant update to the current Macintosh operating system. "It's a must-have upgrade," Jobs contended.

For the year, Apple generated net profits of $309 million or $2.10 per share on revenue of $5.9 billion. This compares to a net loss of $1 billion or $8.29 per share on revenue of $7.1 billion for the previous year.

Shipments up 28 percent
Apple's shipments of computers for the fourth quarter increased 28 percent from the same quarter a year ago, while inventory levels of computers and other products dropped to $78 million, or 6 days. This surpassed Dell Computer's most recently reported level, Jobs said.

The company's average unit prices have dipped due in part to the less expensive iMac. And, last year Apple was still counting on revenues from its Newton line of portable devices and many lower-end printers; Apple only makes one printer now, the LaserWriter 8500, spokesman Russell Brady said.

"I'd rather see them make money on less revenue than lose money on more revenue," said Daniel Kunstler, an analyst at J.P. Morgan Securities.

The quarter marked the first time since December 1993 that Apple's year-over-year unit growth outpaced the industry average, Apple chief financial officer Fred Anderson said in a conference call. Anderson said he expects to repeat the feat during the December quarter, based in large part on holiday sales of the iMac and Apple's professional-level desktops and Powerbooks.

Analysts said Apple's ability to turn over its inventory and keep costs down contributed to the better-than-expected results.

"They had good revenues and good costs, and when you have six inventory days you drive down costs because stuff rots like fish," said Schutte.

News.com's Jeff Pelline contributed to this report.