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Apple reports today but focus is on the future

Apple Computer is set to issue its last earnings report for fiscal 1999 against a backdrop of continued product delays, although analysts say the problems are mostly beyond Apple's control.

Apple Computer is set to issue its last earnings report for fiscal 1999 against a backdrop of continued delays in getting some hotly anticipated new products such as the iBook notebook computers out the door.

The quarter will be one Apple will be glad to put behind it. In September, Apple issued a warning that fourth quarter 1999 earnings would fall short of expectations because of product shortages--the company's first misstep in two years. Analysts' consensus estimates of earnings are now at 45 cents per share for the quarter when the company reports earnings after market close today, according to First Call.

Apple's misstep caused its stock to fall from all-time highs of around 79 to 59, but it has since recovered to 65.56 in afternoon trading today.

Investors seem to have largely shrugged off the news of shipment delays and are now looking at whether the company will recover and have a strong start to its fiscal 2000. By most accounts, the answer will be a resounding yes if supply issues can be resolved.

Wall Street recognizes that "Apple is entering the December quarter with the strongest product line-up in the company's history. For this reason, we do not expect Wall Street to focus on Apple's September quarter earnings today after the close, but rather management's guidance for the December quarter," said Salomon Smith Barney analyst Richard Gardner in a report today. Gardner's earnings estimates for the first quarter of fiscal 2000 have remain unchanged at 90 cents per share.

Shortages due to outside forces
Wall Street is in a forgiving mood because most of the quarter's problems were due to forces outside the company's control.

Apple's iBook consumer portables, which were supposed to be available in September, are still scarce. There is an ongoing shortage of displays for notebooks, as well as continuing problems for all manufacturers shipping products out of Taiwan after the devastating quake, said Brian Phillips, an analyst for market research firm ARS.

The iBooks aren't the only products in short supply. Motorola has been unable to ship enough of the 450- and 500-MHz chips for use in Apple's Power Macintosh systems, according to Apple.

"[Motorola] can ship some 500-MHz chips right now," said Keith Diefendorff, senior analyst with Microdesign Resources. "I believe that Motorola isn't getting as high a yield as one would want," he said, noting that Motorola is making a revision to the chip design in order to get more chips out of every silicon wafer. Such tweaks in the design are common as companies ratchet chips up to higher clock speeds, he noted.

Analysts say that Apple's profitability won't suffer much for any delays in the G4 product line--it's the iMacs and iBooks they are wondering about.

"The G4 is a small chunk of change," in terms of overall revenue, said Lou Mazzuchelli, a financial analyst with Gerard Klauer Mattison. "The issue is, 'Are they going to sell lots of iMacs and iBooks?' " in the upcoming quarter.

Analyst Daniel Kunstler with J.P. Morgan Securities said in a report last week that he thinks that Apple could sell upwards of 2.7 million of the new iMacs in the next fiscal year, and he also sees next quarter's earnings as getting a significant boost from sales of Mac OS 9 software, which is an upgrade to the Macintosh operating system.