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Apple beats estimates, expects tough quarter

The Mac maker posts a quarterly profit that tops Wall Street expectations but cautions that sales and earnings could fall during the holiday shopping season.

    Apple Computer on Wednesday reported a quarterly profit that topped Wall Street expectations but cautioned that sales and earnings could fall sequentially in the current quarter, which includes the holiday shopping season.

    Excluding a $1 million investment gain, Apple earned $65 million, or 18 cents per share, on revenue of $1.45 billion in its fiscal fourth quarter. With the extra $1 million in profit, Apple's earnings amounted to $66 million, or 19 cents per share.

    A consensus of analysts was expecting the company to report earnings of 16 cents per share for the quarter, excluding the gain, according to First Call, with several analysts having pegged revenue around $1.5 billion.

    Chief Financial Officer Fred Anderson said Apple had been on track to exceed expectations considerably prior to the Sept. 11 terror attacks on the United States.

    "We had a very good, solid July and August," Anderson said during a conference call.

    In its fourth quarter last year, Apple earned $170 million, or 47 cents per share, on revenue of $1.87 billion.

    Anderson also cautioned about the current quarter.

    "Given the uncertain global political environment and weak economy, we are targeting December quarter revenues of at least $1.4 billion and (earnings per share) of at least 10 cents," Anderson said in a statement.

    "Our visibility for the upcoming quarter is very limited," Anderson added during the conference call.

    Typically, sales in the December-ending quarter rise sharply from the previous quarter, and several analysts said they had been predicting a roughly 10 percent sequential increase in revenue for Apple. The analysts also said they expected to have to lower those estimates.

    However, last year's holiday quarter was brutal as Apple pared a glut of inventory that had built up in stores and distributors' warehouses. In that quarter, the company reported a $247 million loss, excluding investment gains, on revenue of around $1 billion.

    On Wednesday, Anderson said that although Apple is adding staff in some areas and trimming in some others, it is not eyeing any large-scale cuts.

    "We are investing in some areas like our new retail initiative, like new product development program, like the new CompUSA program" that puts Apple workers inside CompUSA stores, Anderson said. "We are trimming, where appropriate, resources in support or infrastructure areas and trying to manage our headcount (to be roughly) flat... No massive accross the board layoffs."

    Apple also revised its prediction that its newly opened retail stores would be at a break-even level by the end of the calendar year, noting that the stores have been selling fewer Macs since the Sept. 11 terror attacks and that the company is now expecting to sell fewer computers per store during the current quarter, resulting in a small loss for its store operations.

    Apple said it is still planning to open 25 stores altogether this year but would not outline its plans for next year.

    "We have not yet provided any guidance as to any stores. We are carefully evaluating whatever internal plans that we may have had," Anderson said. "Clearly we will be cautious."

    On a positive note, Apple said its sales of iBooks into the education market tripled in its fourth quarter compared with the same period a year ago. Overall, Apple said it shipped 850,000 Macs, including 250,000 of its redesigned iBook, during its fourth quarter.

    "We continued to see accelerated momentum in our education channels," Anderson said during the call, adding the company believes it is continuing to gain share in that market.

    The earnings report comes less than a week before an Oct. 23 event at which Apple will launch a "breakthrough digital device." Sources told CNET News.com that the device is some kind of digital music player, though they said it was not a portable MP3 player.

    Anderson touted but did not identify the product Apple will introduce next week. "We're very excited about this product and think the market will be very impressed," he said.

    Anderson also said that over the next 12 months Apple would introduce some "truly great hardware and software that will further enhance Apple's transition into digital lifestyle."

    Just before the Sept. 11 terrorist attacks on the United States, Apple appeared to be on track for its fourth quarter.

    In Wednesday's conference call, Anderson said the company saw several effects of the Sept. 11 attacks. The company experienced delays in both shipments of components and finished computers, as well as a drop in sales to consumers, with computers leaving store shelves at the end of September below the rate at which they were selling in August.

    Several retailers had told CNET News.com earlier this week that they had seen an atypical sales pattern in Apple's fourth quarter. They said that Apple initially had seemed poised to use its frequent tactic of inducing dealers to order extra products at the end of the quarter. Such a move helps boost sales figures. But Apple ultimately had backed off, the resellers said.

    Asked how Apple would respond to Microsoft's multimillion-dollar media blitz surrounding next week's launch for the Windows XP operating system, Anderson said: "We can't outspend Microsoft, and we're not going to try. What Apple has to continue to do is get rave reviews from our customers and (the) experts that review Mac OS X 10.1."