As Apple Computer prepares for an open conference call with
financial analysts, many company observers have made tentative predictions
that it will likely show a slight profit in its second
quarter--despite a first-quarter loss of $247 million.
Apple will host the marathon four-hour meeting with analysts Wednesday and
the proceedings, which will run from 1:30 p.m. to 5:30 p.m. PST. Though
the company did not detail the agenda for the event, observers expect Apple
will focus on its strategy for returning to profitability, a goal the
company has predicted it will reach this quarter.
"We think the company's set relatively modest goals and will meet them," said analyst David Bailey of New York-based investment bank Gerard
Klauer Mattison. "We are forecasting Apple to break even or show a slight
profit on revenues of approximately $1.4 billion" for its fiscal second
quarter, which closes at the end of March.
Bailey noted that this was despite traditional slowness in the second
quarter. "The second quarter is a difficult one for all computer makers,
particularly for those focused on the consumer, as Apple is," Bailey said.
That's because most consumer sales occur around the holiday season, and
education sales peak in late summer.
He added that the transition to a new PowerBook line could also depress
revenue. "Typically, about 3 percent of the company's revenues come just
from PowerBook sales." Most notebooks, he pointed out, carry higher profit
margins than desktop models.
Constrained product supplies also influenced Bailey's estimate. When Apple
CEO Steve Jobs introduced the
redesigned Power Mac line at January's Macworld Expo, he said the 667MHz and
733MHz models would be available sometime in February, although there have
been reports from customers to Apple's online store that their orders carry
significantly later ship dates.
"We don't anticipate Apple will ship the higher-end G4s in volume this
quarter," Bailey said. "But we think Apple factored it into its guidance."
Though delivery dates for the new PowerBook G4 have "lengthened," Bailey
attributed delays to high demand rather than production stalls.
As for the possibility of other new products being announced this quarter,
Bailey said he expects revisions to the iMac and iBook lines "sooner rather
than later." Any significant influence on Apple's bottom line this quarter, he
said, "will depend on what's announced. A modest increase in speed won't
spin demand so much."
He expects that future iMacs, however, will at least include CD-R or
CD-RW drives to take advantage of Apple's recently released (and
consumer-targeted) iTunes music conversion and playback software.
Similarly, Carl Howe, principal analyst at Cambridge, Mass.-based Forrester
Research, said he was "somewhat optimistic" about Apple's financial outlook
for its second quarter. Still, he said, "the hiccup's not going to occur
"It really all comes down to what the economy looks like," he said. "Our
call has always been that Apple's a primarily consumer company" whose
customers are sensitive to other demands on their pocketbooks, such as
As for whether Apple can ship product, Howe called the company "highly
motivated," saying that Apple representatives had called him up, asking if
he wanted a new PowerBook G4. "If they're doing that kind of outbound
marketing, someone there thinks they have product."
But it's "a crapshoot," he said, whether Apple will be able to ship both the
new (and high-margin) PowerBook and higher-end Power Macs.
Howe downplayed the role of leftover stock in Apple's upcoming profit or
loss. "From Apple's point of view, those products are already sold into the
channel." He also noted that the company had already included unsold units
in last quarter's balance, preferring to take a big loss in one bite.
When asked what would be the easiest way for Apple to turn a profit in the
current quarter, Howe replied, "Bypass the channel." Selling directly at
retail prices, he said, would beef up the balance sheet when the company
needs it most--even if the products don't ship.
As for the prospect of other new models within this quarter, Howe said:
"That's one of the reasons I'm optimistic. I'm thinking that they'll refresh
the whole product line this quarter.
"The real question," he said, "is whether the (G4) Cube will get a SuperDrive," the
combination CD-RW/DVD-R/DVD-V drive that is so far only available for
top-of-the-line Power Mac G4 systems. Howe said he thought the Cube, despite
its lackluster sales, was a decent product. "The price point's just not