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Apple narrowly misses sales predictions

The Mac maker reports quarterly earnings in line with Wall Street estimates, though sales fall short of the company?s own projections.

Apple Computer on Wednesday reported quarterly earnings in line with Wall Street estimates, though sales fell short of the company's own projections.

Apple posted a profit of $38 million, or 11 cents a share, on revenue of $1.38 billion for its fiscal first quarter that ended Dec. 29. The earnings are a marked contrast to the same period a year earlier, when the company posted a loss of $195 million, or 58 cents per share, on sales of just over $1 billion.

A consensus of analysts expected Apple to post earnings of 11 cents a share, according to First Call. Apple predicted in October that it would post sales of at least $1.4 billion and earnings of at least 10 cents per share for the October-to-December quarter.

"Revenues were slightly below expectations due to a shortfall in sales of the iMac," Fred Anderson, Apple's chief financial officer, said during a conference call. He attributed the slower iMac sales to the product line's age and to expectations that a successor was coming. Anderson also noted that some education customers delayed purchases amid concern over the general economy.

However, Anderson said orders for the new flat-panel iMac, introduced last week, have exceeded Apple's expectations and are the strongest for any new Macintosh since the original iMac was released in 1998. Apple plans to spend several million dollars to fly in new iMacs from Taiwan but still does not expect to meet demand in the current quarter.

The latest earnings figures include two extraordinary items that basically offset each other. Apple said it took a $24 million restructuring charge related to "targeted reductions in the company's operations, information systems and administrative functions" while realizing a $23 million gain from equity investments.

The restructuring involved a "relatively small number of staff," Anderson said.

In the prior quarter, which ended in September, Apple earned $65 million, or 18 cents per share, on revenue of $1.45 billion. That earnings figure excluded a $1 million investment gain.

In a statement, Anderson said the company expects to post revenue for the current quarter up slightly from the December-ending quarter "to about $1.5 billion," with per-share earnings "approximately flat with the December quarter."

He added that Apple is "pleased to have delivered healthy results while maintaining lean channel inventories in a very challenging environment."

Boost from new iMacs
The current quarter will benefit from the new flat-panel iMac. The company plans to stagger the release of the new iMacs over the next three months with the top-of-the-line model coming out in late January.

Anderson said during the call that the flat-panel iMac should account for more than half of the current quarter's iMac sales. But he added that how much more than 50 percent will depend on the number of new iMacs Apple can get.

"Initial orders have exceeded expectations," Anderson said. However, he added that he believes it will take Apple most of the current quarter to build up production.

Although Apple's sales are expected to rise this quarter, Anderson said, the company also expects that its expenses will be higher as it pays for air freight to get its new iMacs to market more quickly than if the company used the normal shipment method by boat.

Rising component costs, particularly for flat-panel displays and memory, will also add to the company's expenses during the current quarter, he said.

Anderson said Apple is looking to motivate its 6 million existing iMac owners to upgrade to the flat-panel machine and will accept lower profit margins in order to price the machine aggressively.

"Our strategy is to drive (sales) and accept slightly lower gross margins even beyond this quarter if we have to," Anderson said.

The only computer line that was particularly strong during the December quarter was the PowerBook. The company shipped 116,000 PowerBooks, up 137 percent from a year ago and up 104 percent from the preceding quarter.

Apple shipped 233,000 iMacs, down 24 percent from the same period a year ago and 21 percent from the preceding quarter. The company shipped 185,000 iBooks, up 85 percent from a year ago but down 26 percent from the preceding quarter. Power Mac shipments accounted for 212,000 units, up 5 percent from a year earlier but down 15 percent from the preceding quarter.

The company also noted strong gains from its "peripheral and other hardware" category, boosted by the sale of 125,000 iPod digital-music players in the quarter.

Apple's retail stores generated $48 million in revenue but lost $8 million during the quarter, Anderson said. "We are very pleased with our retail strategy and believe it is helping us reach beyond our traditional installed base," he said.

The company had originally expected its stores to post a slight profit for the company's fiscal year, which ends in September. However, the company said in a December filing with the Securities and Exchange Commission that it expects a slight loss for the fiscal year.