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Apple misses lower 4Q estimates, cuts outlook for 2001

Updated 6:06 ET

Apple Computer (Nasdaq: AAPL) missed the downwardly revised consensus estimate by a penny in the fourth quarter and told analysts to lower their first quarter sights.

After market close Wednesday, the computer vendor reported fiscal fourth quarter net income of $108 million, or 30 cents per share, not counting profits from a stock sale. Following a warning last month from Apple, the 17 analysts polled by First Call -- whose estimates typically exclude one-time gains and losses -- produced a consensus calling for earnings of 31 cents per share.

Shares of dropped to 17.46 in afterhours activity on the Island electronic communications network, following the release of quarterly results. Apple stock ended Wednesday's regular trading at 20.125, unchanged for the session.

Including $62 million from the sale of 7.1 million shares of ARM Holdings (Nasdaq: ARMHY), Apple earned $170 million, or 47 cents per share.

Apple CFO Fred Anderson said the company now expects just a "slight" profit on first quarter revenue of $1.6 billion, and full year earnings per share of $1.10 to $1.25 on revenue of $7.5 billion to $8 billion, approximately flat with 2000. Analyst consensus had called for per-share earnings of 45 cents in the first quarter and $1.73 for the full year.

In a conference call with analysts, the company outlined a number of errors from bad pricing decisions to ill-conceived changes in its sales force, that had resulted in the poor performance. It downplayed the impact of broader industry trends.

"We have a management team that feels accountable for missing our numbers," Anderson told analysts. "The last thing we want to do is point to the industry for what went wrong internally."

Apple executives said that weak sales of the company's latest showcase product, its new Power Mac G4 Cube computer, had contributed abut $90 million to its $180 million revenue shortfall, and that weak sales in the education market had contributed another $60 million.

Apple's September sales were "way below" the company's target, which left the company with unusually large inventory, CEO Steve Jobs said.

"Rather than reducing it gradually over the next several quarters, we have decided to reduce it to a normal level by the end of this quarter," Jobs said in a statement. "This will result in a second disappointing financial quarter, even though our sell-through sales should be moderately strong. Our plan is to be back on track for the January quarter, and we remain very excited about our products and programs for 2001."

The company ended the fourth quarter with about eight weeks of inventory, Anderson said during a conference call with analysts.

Part of Apple's plan for clearing inventory includes cheaper prices.

Jobs acknowledged that the high price of Apple's new Cube computer had been a big problem preventing it from selling more units. "In the eyes of our customers, it is simply priced too high," Jobs said.

Apple last week announced a $300 rebate on the computer, but Jobs said it was "too early to tell," whether the adjustment had boosted demand.

Starting prices for base model G4 computers will be lowered to $1,499, Jobs said.

Apple also plans spending cuts, including a hiring freeze.

Fourth quarter revenue increased 40 percent year-over-year to $1.87 billion, in line with the company's earlier caution. Gross margin of 25 percent was down from 28.7 percent a year earlier.

First quarter gross margin will be about 22 percent, Anderson told analysts.

The company shipped 1.12 million units in the fourth quarter, including more than 570,000 iMacs.

For the full fiscal 2000, Apple reported net income of $786 million, or $2.18 per share, on revenue of $7.98 billion.

Considering Apple's recent problems, Jobs was upbeat on the future. Jobs told analysts that unnamed products -- Apple never preannounces products -- would put the company on the right track.

He described the company's current weakness as a "regrettable" pause, but said Apple had retained its innovative spirit. Hinting at some of the new products it had forthcoming, Jobs said Apple would in coming months introduce two new "breakthrough applications" along the line of its popular iMovie software, a desktop film editing software that has helped drive sales of its iMac computers.

The CEO also said Apple is working to close the chip megahertz gap, boost G4 sales and get aggressive about regaining education market share. For 2001, Jobs said the company is working on "the best product line I've seen in my career."

-- Larry Dignan and Reuters contributed to this report.>