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Apple to post $45 million profit

The computer maker says it expects to report a net profit of $45 million when it reports its fiscal 1998 first-quarter results January 14.

SAN FRANCISCO--Surprising just about everyone, Apple Computer (AAPL) announced today that it will post profits of more than $45 million when it reports its fiscal 1998 first-quarter financial results next week.

The computer makers stock, which was halted immediately following today's news, gained nearly 20 percent, or 3-1/16 points, to end the day at 18-15/16 after trading resumed. More than 16 million shares exchanged hands--more than seven times the average daily volume.

The profit came from higher-than-expected shipments of its new G3 series of computers, Special coverage: All the Mac's a stage lower operating costs that stemmed from its restructuring, and improved gross margins, according to Fred Anderson, chief financial officer.

"We had stable revenues and improved gross margins," Anderson said. "That's how it was done."

Apple's revenues are expected to come in at about $1.6 billion. This compares to revenue of $2.1 billion and a net loss of $120 million, or 96 cents a share, reported for the same quarter a year ago. The company will report its financial figures for the quarter on January 14 after the markets close.

Apple shipped 132,000 units of the G3 series during the last 51 days of the quarter, beating internal company estimates of 80,000 units, Anderson said. Targeting users who work in content-creation, the high-end machines are intended to compete with Pentium II-based systems.

The unit sales were evenly distributed between Apple's traditional channels and its direct-sales Web site, launched in November.

Daniel Kunstler, an analyst with J.P. Morgan, said new product introductions during the December quarter were a key part of Apple's recent success. But will Apple's profitability be maintained in the coming quarters?

"We're out of the business of predicting profitability, and in the business of delivering profitability," Anderson said.

At Macworld Expo here today, Apple interim chief executive Steve Jobs announced during his keynote address two upgraded software products for the Macintosh platform, Office 98 Macintosh edition and Internet Explorer 4.0. IE 4.0 already has been made available for the PC; Office 98 has not.

Jobs also introduced an upgraded version of the Macintosh operating system, version 8.1, and plugged the company's multimedia software, QuickTime 3.0, as a competitor in the market for streaming audio and video over the Internet.

As expected, there was no dramatic naming of a permanent CEO.

At the end of his speech, Jobs said, "I forgot to tell you one last thing. All the guys at Apple have been burning the midnight oil," before announcing the unexpected profits for the quarter.

Apple's second fiscal quarter, which ends in March, is historically the company's worst, but Jobs said the company will be "burning the midnight oil" again in an effort to turn out more profits.

Kunstler said the upside surprise is definitely positive, but said Apple should have worked harder to show a similar positive result earlier.

"They are finally setting their expectations right where the demand is," Kunstler said. "They know they have a revenue base that is fairly firm, around a billion-and-a-half, and they have to turn a profit on that."

On whether this marks a turning point for Apple, Kunstler was cautious. "We don't know," he said. "You can't hang your hat on one quarter, but it is an important milestone."

Kunstler said the profit upswing has to do with the company's product mix as well as the fact that it is negotiating better terms with key vendors. He noted that Apple's distribution deal with CompUSA (CPU) has been at the forefront of its resurgence, and marks a big step up from what he called an "inadequate approach to distribution a year ago."

In November, Apple landed a deal with CompUSA that expanded its floor space and presentation in the retailer's superstores. Apple computer sales accounted for 7 percent of all PC sales at CompUSA's 148 stores in December, but in the 57 stores outfitted with Apple's "store-within-a-store" concept, Apple sales represented 14 percent of all computer sales.

The designated area within CompUSA, where Apple software and hardware are grouped together and staffed by Apple-trained clerks. The remaining CompUSA stores will feature the new concept by February.

Apple also has had a good run with its online sales arm, the Apple Store, which has become one of the top ten grossing e-commerce sites since its introduction.

But sales in other parts of Apple's business were not as stellar.

"We were close to [our company] plan in the first quarter," said Mitch Manditch, Apple's senior vice president of worldwide sales. "We were slightly off, but not by much."

He added that sales and marketing for the K-12th grade segment were combined with Apple's higher-education operations about four months ago.

Sales in the Asia-Pacific region, still mired in economic turmoil, along with those from Japan, were off internal company plans by 13 percent to 14 percent in the quarter, Manditch said. Sales in Europe and the Americas, however, were strong, he said.

Analysts had been expecting a loss of 6 cents a share for the quarter, according to First Call. The consensus of analysts' estimates did not have profits in the company's forecast until the September quarter of 1998.