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Motorola chip delay compromises Apple comeback

Apple's earnings shortfall is a significant bump on the company's road to recovery, but probably not enough to completely disrupt the company's momentum.

Apple's earnings shortfall will be a significant bump on the company's road to recovery but probably not enough to arrest its momentum, computer industry observers say.

Fourth-quarter earnings, which are expected to come in between $75 and $85 million, will be lower than the previous quarter because of problems in obtaining enough PowerPC G4 processors to meet demand, the company said yesterday. But analysts doubt the shortfall in high-end Power Mac G4 desktop sales will completely negate the popularity of the consumer iMac desktop and expected demand for the iBook portable.(See related story)

Announced earlier this month, the G4 chip has been touted by interim CEO Steve Jobs as a "supercomputer on a chip." Its introduction was another part of the company's much-talked-about recovery from the financial problems of a few years ago.

That recovery may have been prematurely forecast. While many PC companies rely solely upon Intel for processors, Apple has recently used chips from both IBM and Motorola. But with the G4's debut, Motorola became the sole supplier, which made Apple vulnerable to any manufacturing hiccups or logistical problems that affect the chipmaker.

The acknowledged shortage seems the more serious because Apple has a history of problems managing the supply of hot-selling products, including its PowerBook notebooks. Some observers expressed concern about the company's ability to meet its own target ship dates.

Motorola blamed the chip delay upon the G4's complex production cycle. But the firm asserted that because the problem stems from overwhelming demand for the chip, the situation is actually an endorsement of the G4 technology.

"Motorola views this as a great endorsement for its G4 processor," the company said in a statement. "The only time a company does not encounter these kinds of challenges during a product launch is when it produces a chip nobody wants to buy."

According to Jobs, "Apple has received orders for over 150,000 Power Mac G4s since the product was announced three weeks ago, and we regret that we will not be able to ship them all this quarter," he said in a statement. "This is a temporary issue, and we hope to catch up early in the coming quarter."

Some analysts agreed. "Shortages usually indicate healthy business, and it sounds like Apple is doing good business," said Dataquest analyst Bruce Bonner.

But Lou Mazzuchelli, an analyst with Gerard Klauer Mattison, noted the company's ship dates are looking doubtful. The company is probably able to ship the 400-MHz version of the desktop today, but the 450-MHz version won't be available for a few weeks, and the 500-MHz chip will probably not be available until November, he said.

"I think Apple cut it really close," said Mazzuchelli, speculating that Motorola production problems caused the shortage. "If [Motorola] could have made the parts, [Apple] would have shipped them on time. This is brand new stuff."

At the time of the launch event, Apple executives appeared to be aware of the potential for availability problems with the G4. "Right now, we've got our hands full getting [G4 systems] to market," Phil Schiller, vice president of worldwide marketing for Apple, said earlier this month.

"I'm not going to say we don't like having two suppliers, but for the moment, that's not an issue," he previously told News.com.

The timing of the chip shortage is unfortunate, noted Bonner, because it could extend into the holiday buying season, which is typically the highest sales period for any PC company. Production time for this type of chip is typically 12 weeks, which means that Apple could potentially be caught unprepared for high-volume sales in December, he said.

But most holiday buyers will be shopping for iBooks and iMacs, Mazzuchelli noted, not G4 computers, which are targeted at professional buyers and high-end consumers. Apple is still on track for a successful holiday season, because those consumer systems do not use the G4 chip, he said.

Still, the G4 systems are among Apple's highest-profit items, which will hurt the company's bottom line. "It could have a relatively severe effect on earnings," Bonner said. "These are the ones they sell for the highest profit, so it could have a disproportionate effect on their earnings."

Another unforeseen production problem for Apple could be the massive earthquake that pounded Taiwan early today. It registered 7.6 on the open-ended Richter scale and hit hard in areas where most of the world's laptop computers, including Apple's iBook, are produced.

News.com's Jim Davis and Reuters contributed to this story.