October 17, 1996 6:00 PM PDT

Analysts don't bite on Apple

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October 7, 1996
Apple Computer's (AAPL) stock jumped 7.8 percent today in trading after it surprised Wall Street with news that it would post a fourth-quarter profit, but analysts remained apprehensive about the company's future.

Apple, which announced its $25 million profit after the market's close yesterday, saw its shares trade as high as 27-3/4 before closing at 26-3/8 today.

Wall Street had been expecting a quarterly loss of 30 cents a share, based on First Call, which compiles a consensus of analyst estimates. But Apple came in with a profit at 20 cents a share, its first profitable quarter of the year.

But the profits still fall short of its performance a year ago, when the company reported earnings of $60 million, or 48 cents a share. In additionl, revenues came in at $2.3 billion for the quarter ending September 27, down 23 percent from the same period last year.

The report was seen widely as welcome news for the beleaguered company, which has suffered problems ranging from a major recall to enormous losses posted earlier this year. But industry watchers and analysts were wondering if competitive efforts from Microsoft, Compaq Computer, and others would cripple Apple's standing in the market.

"It's possible [Apple] can recover but unlikely," said Kurt King of Montgomery Securities. "[It has] never seen its sales drop this much before."

"Apple was the only vendor of the top-ten PC makers to fall in shipments this year," Richard Zwetchkenbaum of market researcher International Data Corporation told Reuters.

Noting the company's weakened position in rolling out products and in research and development for new technologies, Zwetchkenbaum asked, "Where are Apple's innovations going to come from? They've got to come up with something new, something from the ground up."

Apple's earnings were driven by declining component costs and running a more efficient operation, according to Fred Anderson, its chief financial officer. Anderson noted that the company is on track to achieve sustainable profits by the end of the second half next year.

Apple has seen some improvements as well during the fourth quarter, compared to previous quarters. The company, which had set aside a reserve in the second quarter to handle its major restructuring project, found that it did not need $28 million in funds it had set aside for the fourth quarter. If it had not made the readjustment, it would have posted net earnings of $8 million for that period.

"While we had planned 2,800 job cuts, it now looks like we have to have 1,500 because of a higher-than-expected attrition rate," Anderson added.

Operating expenses before the restructuring adjustment dropped to $505 million in the quarter, compared with $519 million in the previous three months.

Inventories have also been reduced by $400 million during the quarter and the company's liquidity has progressed to more than $1.7 billion in cash and securities. CEO Gilbert Amelio said in a statement: "The question before us is not will Apple survive, but rather how will Apple establish leadership in the emerging digital era of the Internet and multimedia."

Apple's year-end performance posted a net loss of $816 million, compared with net profits of $424 million the previous year. Revenues for the year reached $9.83 billion, an 11 percent drop from the year earlier.

Reuters contributed to this report.

 

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