Apple’s Profit Slips as Bottlenecks Prevent Firm From Meeting Demand

Apple Computer Inc.’s quarterly profit declined for the first time in two years as the Taiwan earthquake and a series of supply problems kept the company from meeting surging demand for its machines.

Apple said earnings in its fiscal fourth quarter slipped to $90 million, or 51 cents a diluted share, before one-time sales and charges, from net income of $106 million, or 68 cents, a year earlier.

Cupertino, Calif.-based Apple warned Sept. 20 that profit might be between $75 million and $85 million, and a consensus of analysts from First Call had predicted that Apple would earn 45 cents a share.

The stock fell $3.66 to $64.03 in regular Nasdaq trading but climbed back to $68.13 in after-hours trading after the unexpectedly good results were announced.

“In today’s market, a good CEO sets expectations and exceeds them. It can actually work even if you lose money,” said Rob Enderle, an analyst with Giga Information Group.

Apple’s stock has risen more than threefold since the middle of 1997, when co-founder Steve Jobs became interim chief executive. Apple shares touched $80.13 just before the company issued its warning in September.

Revenue in the quarter fell sharply to $1.3 billion from $1.6 billion, hindered by the earthquake, which halted production for one week of Apple’s iBook, the consumer portable introduced in August.

Apple previously blamed Motorola for failing to supply enough microprocessors for its souped-up G4 PowerMac desktop, aimed at graphics professionals. On Wednesday it said it would add IBM as a second supplier of the chips as part of a Motorola-IBM deal.

Apple also said it would delay the introduction of the speediest G4, a 500-megahertz version, until 2000.

“They were forced to do that because of production problems, and I think they could have offered up a symbolic price cut” to ease eager buyers’ pain, said Louis Mazzucchelli, an analyst at Gerard Klauer Mattison. “There might be some backlash against them.”

Demand has continued to soar for Apple’s alternatives to the dominant personal computers made with Intel microprocessors and Microsoft’s Windows operating systems.

After last year’s introduction of the iMac consumer desktop, more than 150,000 orders were placed in the four-month period before they began shipping, Mazzucchelli said.

In the week since Apple announced new versions of the iMac, an incredible 250,000 have been ordered, Chief Financial Officer Fred Anderson said Wednesday.

“What’s the difference? People feel that Apple is a safe bet, that it’s not going to die on them,” Mazzucchelli said. “The good news is that the demand picture continues to improve.”

In the fiscal year that began Sept. 26, Anderson said the company hopes to ship between 35% and 40% more computers than it did in the past year and increase revenue 20% to 25%.

Analysts said some of the supply problems are clearly the company’s fault and Apple plays a dangerous game by announcing products that aren’t ready to be shipped in volume.

The most recent product announcements contributed to the weak fourth quarter by undercutting demand for existing products, Enderle said.

Only 6,000 iBooks have been shipped out of 300,000 ordered, Anderson said.

“They pre-announced the iBook and the G4 before they were ready, and that typically is a mistake,” Enderle said. “They kind of made some bonehead moves and some brilliant moves, and it just worked out for them.”

At a Glance

Other earnings, excluding one-time gains or charges unless noted:

* Avant Corp., a Fremont, Calif.-based maker of software for designing semiconductors, reported third-quarter net income of $14.7 million, or 37 cents per share, compared with $11.4 million, or 30 cents, a year ago. Revenue rose to a record $75.5 million from $63.4 million.

* Costa Mesa-based Emulex Corp., which makes computer-networking products, reported fiscal first-quarter net income of $6.8 million, or 36 cents per share, compared with net income of $422,000, or 3 cents, a year ago. Revenue rose more than 100% to $28.9 million from $14.1 million.

* Sunnyvale-based Redback Networks Inc., a maker of equipment that blends data traffic from phone and cable lines, said its third-quarter loss narrowed as sales climbed sevenfold. The company had a loss of $1.62 million, or 4 cents a share, compared with $2.58 million, or 44 cents, a year earlier. Sales surged to $20.6 million from $2.9 million.

* SanDisk Corp., a Sunnyvale-based maker of data-storage products, said third-quarter earnings more than doubled on rising sales of its memory devices. Net income rose to $6.5 million, or 21 cents a share, from $2.5 million, or 9 cents, in the year-earlier quarter. Revenue more than doubled to $67.5 million from $32.1 million.

* Santa Clara-based Visx Inc., the No. 1 U.S. maker of lasers used to correct vision, said its third-quarter earnings rose 68%, more than expected, on increasing demand for laser surgery to improve eyesight. Net income rose to $24.7 million, or 36 cents a share, from $14.7 million, or 22 cents, a year ago. The company was expected to earn 34 cents. Revenue more than doubled to $79.7 million from $35.8 million.

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Apple Earnings

Apple earnings turned the corner in 1998 and have continued their upward trend this year. Fiscal-year net income, in millions:

1999: $601 million

Source: Company reports