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Clone sales ding Apple

The computer maker warns that sales and revenue will remain below year-by-year comparisons at least until March due in part to fire-sale prices on Mac clones.

Apple Computer (AAPL) warned in a Securities and Exchange Commission (SEC) filing that sales and revenue will remain below year-ago figures at least until March in part due to fire-sale prices being offered on Mac clones.

Still, dwindling clone inventories and increasingly aggressive pricing from the computer maker may mean that the worst part of the recovery cycle could be over.

Apple's statements were contained in a 10-K filing with the SEC last Friday. In the document, Apple said, "The company believes that net sales will be below the level of the prior year's comparable periods through at least the second fiscal quarter of 1998, if not longer." Apple's second quarter of fiscal 1998 ends in March.

A contributing factor to this slide, the document further stated, came as a result of additional pricing pressure from clone manufacturers.

If so, it means that the first half, historically speaking, could be dismal. Net sales were down 28 percent in fiscal 1997 compared to fiscal 1996. Fiscal 1996, in turn, was down 11 percent from fiscal 1995.

The closeout prices being offered on clones is one of the ironic effects of Apple's earlier decision not to renew cloning licenses for Power Computing and Motorola. Once it became clear the two companies would not be able to sell Mac clones in 1998, both companies drastically cut prices on their inventories to blow out existing stock.

The strategy apparently worked. Closeout models from clone vendors have been selling like hotcakes, according to sales representatives at Mac Warehouse and MacMall, two of the remaining clone dealers.

Particularly popular are the low-end computers priced at or just above $1,000. In total, less than 100 of Power Computing's PowerBase computers using the 603e chip remain unsold. The PowerBase currently sells for around $1,100. The low-end Motorola StarMax, which has been discounted to $999, has become another seller.

Apple is also facing competition in its direct sales effort from its own dealers. Club Mac, a large reseller in Southern California, reported that it gained 4,000 new customers in a recent month due to its policy of selling equipment below Apple's minimum advertised price.

"Our sales went through the roof," said Mike McNeill, president of Pacific Business Systems, who admitted that his company has been selling at discounts of up to $150 below the minimum advertised price. "We had the biggest Apple month we ever had."

The "minimum advertised price" is the retail price Apple tries to enforce as the standard lowest retail price. It is also the price that Apple is offering equipment on the Apple Store, the company's new online retail site.

Apple has responded to the challenge posed by dealers like Club Mac by bundling a digital camera with one of its systems on The Apple Store.

Still, McNeill's experience points to another facet of the equation. Namely, that customers have once again become interested in Macintosh. "A lot of people are buying G3 machines," which were released earlier this year, he said.

Matt Sargent, a consultant with Computer Intelligence, reported that Apple's sales in the dealer channel have recovered from a low of 2.8 percent in July to 5.4 percent in October. The surge can partially be attributed to the decline in clones.

On the other hand, Apple continues to slide in the retail arena, said Sargent. Apple held a 6.1 percent retail share in December 1996. In October 1997, the company earned only a 2.4 percent share.