August 11, 1997 7:25 PM PDT

Apple to see more red

Apple Computer (AAPL) today officially revealed that it will stay in the red through its fourth quarter.

In a filing today with the Securities and Exchange Commission, Apple cited restructuring costs when it reported that it Macworld saga "does not believe [it] will return to profitability in the fourth quarter." The company also said net sales will likely fall short of the prior year's comparable levels through the first quarter of 1998, if not longer.

Expectations of a return to profitability by the fourth quarter have been the subject of much doubt and speculation since they were set forth by then-CEO Gilbert Amelio earlier this year. His apparent inability to make good on such bottom-line promises played a central role in his ouster by Apple's board last month.

Chief financial officer Fred Anderson said in July that Apple would not reach its fourth-quarter profitability goal, but today's filings represented the first official recognition in government documents that the computer maker would not return to financial health in the near future. The filings went on to spell out a number of pending woes that will loom over the coming quarters.

Analysts are not surprised by the company's acknowledgment it will miss its profitability forecast, and investors probably won't be too concerned either.

The recent jump in Apple's stock price is an indication that people are looking beyond the near term, said Rick Berry, an analyst with Murphey, Marseilles, Smith. "People's horizons now have expanded from quarter-to-quarter to one to two years down the road."

The company's stock raced to a 52-week high of 29-3/4 last week on news of Microsoft's $150 million investment and the appointment of a new board of directors at Macworld Expo in Boston. Since then, the share price has slowly sunk back, falling 2-1/4 to close at 24-9/16 today.

A.G. Edwards today cut its rating on Apple to "reduce" from "maintain."

In its most recent quarter, Macintosh computer unit sales and peripheral unit sales decreased 17 percent and 27 percent, respectively, compared with the same period of 1996. The company blames that reduction on customer concerns about Apple's direction, financial condition, the viability of the Mac platform, and competitive pressures.

During the third quarter, Apple made adjustments to the categories and timing of expected restructuring spending. Apple now expects a remaining $167 million accrued balance at June 27, will result in cash expenditures of about $100 million over the next 12 months and $12 million thereafter, the company said. Most restructuring will be completed within the next six months and will be financed through current working capital and, if necessary, continued short-term borrowings, according to the filing.

Meanwhile, the company's backlog decreased to $293 million at August 1, from $409 million at May 2. The trend is primarily attributable to satisfying pent-up demand for the company's flagship line of Power Macintosh products. Backlog is often used as an indication of future performance as demand translates into revenue once product orders are filled.

The benefits to the company from licensing the Mac OS to third parties may be more than offset by the disadvantages of competing with clones, the company said in the filing. Apple is in discussions with clone makers over future licensing arrangements, including whether to extend such arrangements.

The company also said its Newton unit will be spun off into a separate but wholly owned subsidiary named Newton, Inc.

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