Apple distribution turned tide

Resellers say the computer maker's distribution system improved during its fiscal first quarter, helping them meet strong demand for the company's new PowerPC 750 series.

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
3 min read
If you build it, will they come? When they come, will it be in stock?

Apple (AAPL) resellers have said Special coverage: All the Mac's a stage that the computer maker's distribution system improved during its fiscal first quarter, helping them meet strong demand for the company's new PowerPC 750 series and boosting Apple's sales into the channel and profitability.

In a move that surprised Wall Street, Apple yesterday announced that it expected to post a profit of $45 million for the fiscal first quarter that ended in December. Analysts expected the troubled computer maker to post a loss for the quarter, and the latest news marks the first time the company has posted a profit since its 1996 fiscal fourth quarter.

Apple pointed to its cost-cutting initiatives and to demand for its new 750, or G3 series, as major contributors to its anticipated profitability. Unlike the last time Apple posted a profit--in part due to stuffing the channel with computers, a move that the company paid for in the following quarter--resellers say the G3s are flying off the shelves.

"Historically, Apple would come out with a computer and you would order 50, but only get five," said Ken McNeill, chief executive of reseller ClubMac. "But the this time they had clear lines of distribution. When you wanted more, they had more."

Under Apple's recent changes to its distribution system, MacCenter last month began buying its computers directly from Apple, rather than from a distributor.

"Now that we deal with Apple, we get our products much faster," said MacCenter's Carol Frame.

Mac resellers, along with Creative Computers, the company that operates MacMall, all report strong sales of the G3 products.

"Demand for the G3s is brisk," said Dan DeVries, executive vice president of marketing and purchasing for Creative.

ClubMac generated $5.5 million in Apple sales in December, of which 40 percent came from the G3 computers, McNeill said. Frame noted that MacCenter sold about 75 percent more G3 computers than expected during the last 45 days.

Apple declined to discuss its distribution into the channel pending the formal release of its first-quarter results on January 14.

Although the latest events bode well for the Apple, analysts are taking a wait-and-see approach.

Eight analysts today reconfirmed their "hold" ratings on the company, and one upped the rating to a "weak buy" from "hold," said Chuck Hill, a spokesman for First Call.

Earnings estimates, which stood at a loss of 6 cents for the quarter before Apple's preliminary announcement yesterday, were upped to an average of 35 cents based on seven analysts who changed their estimates today.

James Poyner, an analyst with CIBC Oppenheimer, is among those who have maintained a hold rating on the company.

"One quarter does not mean it's sustainable," Poyner said. "Last year, it took forever to deliver their PowerBooks. There was pent-up demand, so they sold a couple hundred thousand in one quarter, and then the next quarter--poof--it dropped like a stone."

Poyner said he expects Apple to announce that total unit shipments for its usually-strong fiscal first quarter will be down from the previous quarter. He estimated that shipments will be around 650,000 units, compared with over 700,000 units during the fourth quarter. He also predicted that revenues overall will be down sequentially.

Apple's rosy profitability picture is being helped by the fact that the G3, like any new product, carries a higher price tag and fatter profit margin than older products.

Poyner, however, said Apple appears to have avoided the "inventory debacles" of its recent past history, and has done a good job in managing expenses in the first quarter. He remains skeptical, however, that Apple will be able to grow its overall revenue base in light of its shrinking market share and product lines that typically cost far more than those associated with Windows-Intel machines.

"There's a finite number of Apple users," he said. "And there's been a slow erosion of their customer base."