Apple tries to stay up in earnings today

With the challenge of showing sustained profitability behind it, analysts are now hoping Apple Computer can show sustainable revenue growth as evidence the company's market continues to be a healthy one.

Analysts are predicting that Apple will post earnings of 57 cents per share when it posts quarterly results today, according to the consensus estimate from First Call.

Meanwhile, the company has snared a new chief marketing executive. Steve Wilhite, the man behind the successful Beetle campaign for Volkswagen in America, joined Apple this week.

Wilhite, 47, will report to interim chief executive Steve Jobs, who has been leading Apple's marketing efforts, including its successful campaign for the iMac home personal computer. Jobs will continue to oversee all marketing programs.

Last quarter, excluding one-time gains, the company posted earnings of 78 cents per share, besting estimates of 70 cents, the fourth quarter in a row the company has beaten analyst expectations.

Analysts are quietly hoping sales of the company's new PowerMac G3 systems and multicolored iMacs will again propel the company past estimates, although PowerBook sales are expected to be weak in anticipation of newer models.

Lou Mazzuchelli, analyst with Gerard Klauer Mattison, said he is looking for the company to show some market-share gains and continued cost containment as signposts for Apple's future earnings potential. As for the current quarter, Mazzuchelli said he thinks Apple can hit beyond his predicted market of 59 cents per share.

However, Apple's shares were down 1.62 today along with other PC makers, in part due to a general unease about investing in the sector caused by Compaq's announcement that its earnings would come well below estimates and other issues. (See related stories.)

Mazzuchelli, for one, thinks concern about Apple is unwarranted. "A lot of the skirmish [in the PC hardware sector] is in large corporate accounts, and Apple has minimum exposure to large accounts. Although they wouldn't have said this five years ago, there is a benefit from not being there."

And while Compaq has struggled to maintain a balance between selling direct to customers and selling through resellers, Apple has "done the best job of any of the PC companies in taking pages out of Dell's playbook and applying it to their company," he said.

Longer-term issues for Apple may have also kept the stock back from its 52-week high of 47.3125 reached in January. Questions about inventory management have lurked in the background for some analysts since January's introduction of the multicolored iMacs. After last quarter's earnings were posted, some analysts downgraded Apple because of this very issue. Overall, the consensus now is a "hold" rating on the stock, according to First Call.

At the annual shareholder's meeting, company executives addressed concerns that they are putting in place new supply chain management systems to help Apple deal with "flavor management," or the science of preventing surpluses or shortages, with the different colors of the iMac.

So far, indications from resellers are that the company tended toward an extremely tight supply of the iMacs, which could act as a brake on revenue growth, but alternatively means the company is not significantly exposed to charges for inventory write-downs, either.

In addition to holding a tight rein on inventory, Apple made moves in the quarter to continue to lower production costs by outsourcing more of its production to LG Semicon, according to reports.

Apple noted it will take a $9 million charge in the quarter related to outsourcing the assembly of some of its Macintosh computers, according to a filing with the Securities and Exchange Commission.

That charge will be more than offset by a $55 million pretax gain in the second quarter related to the sale of 2 million shares of technology company ARM Holdings. Apple now has about 7.3 million shares, or 14.9 percent of ARM shares outstanding. Apple sold $29 million worth of shares last quarter.

Last quarter, Apple reported $152 million in net profits for its fiscal first quarter of 1999, and its first year-over-year revenue growth in three years. Apple also reported $1.71 billion in revenues, a significant increase from 1998's first-quarter revenues of $1.6 billion.

Bloomberg contributed to this report.