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Apple slices revenue forecast--again

Shares in Apple drop following a new warning that slow sales in October and November will cause it to report earnings below its already-lowered forecast.

Apple Computer stock on Wednesday closed at its lowest point since June 1998, following the company's announcement that sales will fall "substantially" below already lowered forecasts and push the company into the red for the first time in three years.

The Macintosh maker said late Tuesday it expects to report quarterly revenue of about $1 billion--$600 million below its prior forecast--and a net loss, excluding investment gains, between $225 million and $250 million when it reports final results Jan. 17.

The company blamed the shortfall on slow sales in October and November, noting that revenue and earnings will fall "substantially below expectations" for the October-to-December quarter, Apple's fiscal first quarter.

At the close of regular trading Wednesday, Apple was down $2.69, or 16 percent, to $14.31 on a volume of 24.3 million share--more than twice its average daily volume.

The stock hasn't closed this low since June 26, 1998, when it ended the day at $14.09.

A number of analysts issued downgrades on Apple Wednesday morning. JP Morgan analysts lowered their rating on Apple's stock to long-term "buy" from near-term "buy." Analysts at CS First Boston dropped their rating on the company's stock to "hold" from "buy." In research notes UBS Warburg analyst Don Young lowered his fiscal year 2000 revenue estimates to $6 billion from $7.8 billion, resulting in a 10 cents per share loss for the year. Young maintained a "hold" on Apple's stock. Meanwhile, Merrill Lynch analyst Steven Fortuna reiterated a near-term "neutral" rating on Apple shares.

Tuesday's announcement marks the second consecutive quarter in which the company has warned that results will be significantly lower than previously forecast. Apple's new warning follows a similarly dire forecast from Gateway on Nov. 29. Analysts at the time predicted that a similar fate could befall Apple.

Meta Group says that as long as Apple's basic financials are solid, this slowdown is no reason for existing Apple users to panic--Apple will be around for some time to come.

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In late September, Apple issued an earnings warning that sent its shares down 50 percent.

The Cupertino, Calif.-based company posted Tuesday's warning after the market's close. In regular trading, Apple shares gained 31 cents to close at $17.

In a conference call Tuesday, chief executive Steve Jobs said Apple was blindsided by the combination of internal problems, a slowdown in computer sales, and a general downturn in the economy.

"We were simply not prepared to be hit by three major problems simultaneously. I'm not proud of this," said Jobs, who is in his second go-around at Apple's CEO since returning in September 1997.

Apple is focused on reducing inventory from 11 weeks worth at the end of last quarter to six weeks worth by the end of this quarter, Jobs said. In October, Apple thought it had eight weeks of inventory on hand, but given the slower sales, it realizes now it actually had about 11 weeks of unsold computers in the hands of retailers and distributors.

Still, Jobs said Apple expects to return to profitability in the January-to-March quarter, assuming it can exit this quarter with a more normal six weeks worth of inventory. To try and ease the glut, Apple will make fewer computers this quarter while continuing aggressive discounts.

However, Apple said its string of rebates and other promotions will cause a further hit on this quarter's earnings.

The company said it will have $250 million in additional costs for the October-to-December quarter--$135 million stemming from the unplanned promotions and $115 million in charges for canceling component orders.

A downer
Apple Computer's stock plunged 50 percent in a single day in late September and has yet to recover.  
Source: Prophet Finance
The company also lowered its forecast again for the full fiscal year, saying revenue will now fall in the range of $6 billion to $6.5 billion. In its October earnings report, Apple cut its outlook to the $7.5 billion to $8 billion range and had forecast per share earnings of $1.10 to $1.25.

In October, Apple likewise reported disappointing earnings and cut its outlook for the October-to-December quarter and beyond.

Several of Apple's problems--the slower speed of its processors compared with its rivals, the lack of a CD-RW drive, and the lukewarm response to Apple's PowerMac G4 Cube--are of Apple's own making, Jobs said. However, he promised faster chips and a rewritable CD drive in the coming months. He added that Cube sales have stabilized, albeit at a lower level than Apple had originally forecast.

Analysts say a general unwillingness among computer owners to upgrade their systems is hitting Apple as hard as the rest of the industry. Preliminary estimates from market researcher PC Data put Apple's November retail sales down nearly 25 percent from the same period last year.

"Why would they be any more immune to these problems than anybody else?" PC Data analyst Stephen Baker said. "If people are not willing to upgrade, that hurts Apple more than some of the other makers. A big part of the iMac business and the PowerMac business is people buying new machines. Apple on an overall basis is not taking share from the Windows guys."

While acknowledging that Apple has its problems, Jobs attempted to assure analysts that it has the wherewithal to recover.

Jobs noted that Apple has about $11 per share in cash and short-term investments, compared with Gateway's $3 per share and Dell Computer and Compaq Computer 's approximately $1.75 per share each.

"We have an Arnold Schwarzenegger balance sheet," he said, "with over $4 billion in cash."

News.com's Joe Wilcox contributed to this report.