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Apple's strong quarter smashes estimates

The company announces that it made net profits of $183 million in the quarter and that revenues grew 37 percent on a yearly basis.

Apple Computer greeted the new millennium with a bang by posting a strong quarter of earnings that far exceeded expectations and last year's mark.

The Cupertino, Calif.-based computer maker announced that it made an operating profit of $178 million, or $1.00 per share, well beyond the 89 cent per share estimate from a consensus of analysts on First Call. Earnings per share from operations rose 29 percent over profits of 78 cents a share for the same period last year.

The positive surprise can be taken as another piece of evidence that the "new" Apple can execute on its promises even after missteps. Last quarter, the company earned $90 million from operations, but that level was lower than originally forecasted because of chip production snafus and a tight market for LCD displays that are used in notebooks.

Including non-recurring gains and charges--such as the sale of approximately $101 million worth of stock in technology company ARM Holdings, a net restructuring charge of $6 million and a one-time charge for a "special executive bonus" of $90 million--Apple posted earnings of $183 million, or $1.03 per share. The bonus turned out to be a jet for chief executive Steve Jobs. (See related story)

Revenues for the quarter were $2.34 billion, up 37 percent from the year-ago quarter, the company said. Gross margins were 25.9 percent, down from 28.2 percent in the year-ago quarter.

The results were released after the markets closed today. At about 1 p.m. PST, the close of regular trading, Apple shares were up $2.62 cents, or about 3 percent, to $106.56.

Apple said that its quarterly revenue growth represented its highest such growth since 1989. Additionally, Apple said it set an all-time high in terms of units sold.

The strong sales combined with internal market research "makes it clear our products are reaching many new customers beyond Apple's installed base," said Fred Anderson, Apple's CFO.

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Apple exited the fourth quarter with an "extremely large" backlog of more than $700 million in orders. That translated to some 400,000 units not shipped, a majority of which were iBook orders.

In the first quarter of 2000, Apple said it sold 1,377,000 systems, including more than 700,000 iMac consumer desktops and 235,000 iBook consumer portables. While it appears that Apple did not completely catch up with its iBook backlog, it made a significant dent in the logjam and garnered unit growth of 46 percent, year-over-year.

Apple said that at that rate, it is outpacing the industry average, which International Data Corp. is currently forecasting at 17 percent for the December quarter in terms of total worldwide inventory unit growth compared with the year-ago quarter.

The expansion of the iMac line to three models seems to be paying off. Anderson said that the company expanded sales volume but didn't see any changes in the average selling price of the iMac compared to when the company offered just one iMac at $1,299 last year. In other words, the company balanced sales of the sub-$1,000 iMac with the higher profit margins associated with the top of the line iMac DV Special Edition, which is priced at $1,499.

Since the close of the quarter, Apple has finally started to outline its Internet strategy, which analysts consider to be central to Apple's efforts to boost profit margins.

Jobs, who this month decided to take the helm at Apple on a full-time basis, unveiled a host of new Web-based services and a revamped Web site earlier this month. Among the new services, Apple will publish iReview, a Web site review service, and run an electronic greeting card site called iCards. Services for data storage, personalized Web addresses and site blocking for minors will also be included.

Looking to the future, Anderson hinted at how its Internet strategy would add to the company's growth prospects.

In first week of availability, Apple said it had over 10 million page views of its revamped corporate site. Among the new Internet services it is offering, over 250,000 greeting cards have been sent and over 150,000 customers are using its Internet-based iDisk storage service, the company said.

While the services are free, Anderson said Apple was hoping to get a modest boost in sales of Mac products such as its OS 9 operating system as a result of getting people to visit the site more often.

Anderson forecasted that Apple would continue to experience strong yearly gains in revenue and unit sales, even as sequential results will follow their historic pattern of a downturn. He told analysts that order backlogs were at more normal levels, as well.

This month, Apple also announced a deal with EarthLink, in which analysts expect Apple to be receiving a recurring slice of Internet service revenue in return for making EarthLink the default ISP for its customers. The deal will pay off to the tune of another $25 million to $35 million of additional revenue in 2000, Anderson said.