Apple posts $101 million in profits

Driven by strong sales of its G3 computers, the Mac maker posts third-quarter profits that far surpass estimates.

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
4 min read
Driven by strong sales of its Macintosh G3 computers, Apple Computer today reported third-quarter profits that far surpassed Wall Street estimates.

The computer maker, posting its third straight quarterly profit, reported earnings of $101 million, or 65 cents a share, for the quarter Apple at a glance ending June 30--compared with a loss of $56 million a year ago. Excluding one-time gains from such items as an investment in a company that later went public and a charge for a technology acquisition, Apple's net income was $75 million, or 50 cents a share, for the third quarter just completed.

Apple's earnings exceeded analysts' expectations of 33 cents a share, according to First Call. However, revenues fell 19.3 percent to $1.4 billion for the third quarter, compared with a year ago.

Fred Anderson, Apple chief financial officer, said revenues declined year over year and were flat sequentially, as the company's production capacity was constrained. During the third quarter, the company was ramping up production for its PowerBook G3s and gearing up for shipments of its iMac consumer computer in August.

Apple was also hit by a drop in unit shipments, Anderson added. A lack of a consumer line in the quarter "significantly" hurt unit shipments in Europe and Japan. The company shipped 644,000 units overall in the quarter, down from 650,000 in the previous quarter.

But the company was able to cut down its inventory in the quarter. "Inventories were a great area for the company this quarter," Anderson noted. "We were down significantly from $257 million at the end of March to $129 million at the end of June."

Still, industry observers were optimistic, and resellers said they expect their fourth-quarter Apple sales to be strong as well.

"I think we're in a climbing mode with Apple's sales," said Chris Ferry, division vice president for Bell Industries, an Apple reseller. "We're seeing a definitive interest in the new G3 models and G3 portables."

The string of good financial news from the once-struggling company indicates that Apple has halted a decline in sales and market share. It also has reinvigorated its efforts to satisfy the needs of its loyalists and its installed base in education, publishing, and other professional sectors.

Last November, Apple introduced its third generation, or G3, high-speed processors with a new line of desktops. The desktops and the notebooks released in May have since seen brisk sales.

"The new G3 PowerBooks are a huge factor," said Paul Ramirez, vice president for ComputerWare, one of the largest Mac resellers. "We have sold every single one we've received, and we can't get more fast enough--especially the 292-MHz configuration with the 14.1-inch display."

Ramirez added Apple offered new incentives early this year for dealers to maintain lean inventories. "Apple has done a very good job of smoothing out its inventory, which not all computer manufacturers have succeeded at doing."

"Our inventories are really in very good shape," agreed Ferry. "We have less than two weeks' [worth of] product."

Other resellers are reporting a similar momentum in sales that they expect to continue during the fourth quarter, which will end in September.

"We had a strong July last year, and its looking like [this July] will be at least 30 percent higher than last year," said Mike McNeill, president of ClubMac. He added that July sales are shaping up to be about 25 percent higher than June's.

Sales of the G3 systems are expected to remain strong, and ClubMac expects to see a larger number of sales of Apple's high-end PowerBooks during the fourth quarter.

"These 292-MHz PowerBooks were not really available in the last quarter, but we're hearing they'll be freed up in July," McNeill added. He noted that his company has "hundreds of back-order requests for the high-end PowerBooks," representing more than $600,000 in sales.

Analysts are expecting Apple to post net profits of 44 cents a share for the fourth quarter, according to First Call.

Ferry said that during the third quarter Apple had strong sales in June, especially in the education market, and noted that resellers are optimistic about future sales of the iMac, Apple's new all-in-one consumer market desktop computer.

"Demand for entry-level G3 desktops is starting to decline in anticipation of iMac's launch," ComputerWare's Ramirez said. The company already has confirmed back orders for 350 iMacs, "which is absolutely unprecedented."

McNeill said his mail-order business was booming. "We had the biggest May and June that we've ever had." Sales for those two months were up 25 percent to 30 percent over the same periods in 1996, formerly the best May and June on record for Apple.

Sales of the G3 233-MHz desktop and G3 266-MHz minitower also were strong in the third quarter for ClubMac, accounting for 35 percent of its overall Apple sales. The stripped-down version of the G3 300-MHz was the next best seller, accounting for roughly 10 percent of sales, according to McNeill.

Stock in the Cupertino, California, company closed in record territory today at 34.4375, up 3 percent, breaking the previous 52-week high. The stock has traded as high as 34.125 and as low as 12.75 during the past year.

Between 1996 and 1997, when Apple's stock price fell from about $35 a share to roughly $15 a share, the company steadily lost market share. But those numbers, like the company's profits, appear to have stabilized since January, analysts said.