January 16, 2001 1:10 PM PST

Despite new products, analysts expect bruised forecast from Apple

Despite a flurry of new products at last week's Macworld Expo trade show, analysts expect a sour forecast from Apple Computer when the Mac maker reports its fiscal first-quarter earnings Wednesday.

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Will new products save Apple?
Stephen Baker, VP of technology products, PC Data
Apple has twice lowered its forecast for the quarter and for 2001. For its fiscal first quarter, Apple has warned it will have a loss in the range of $225 million to $250 million.

However, a number of analysts say they expect that Apple CEO Steve Jobs may lower the outlook for the current quarter that ends in March and again for 2001, amid a continuing glut of inventory and an ever-worsening PC market.

"While impressed with Apple's new products, we continue to believe that the company suffers from a channel inventory overhang of existing products and that March quarter guidance will be reduced again," Salomon Smith Barney analyst Richard Gardner said in a research note last week.

Apple is expected to lose 65 cents per share for the October-to-December quarter, its first quarterly loss since 1997--the year Jobs returned to Apple as interim CEO. Revenue is expected to come in around $1 billion.

The earnings report comes just after last week's bustling Macworld trade show, where the company announced faster Power Macs, a new Titanium PowerBook, and new software for recording MP3 songs and making DVD movies at home.

The new computers and software may help Apple over the long haul, but analysts say the products are unlikely to significantly drive sales now.

"Despite some interesting announcements and a solid display of exciting technology, we don't walk away with the sense that the near-to-medium-term prospects for the company are any brighter than previously thought," Merrill Lynch analyst Steven Fortuna said in a research note.

In particular, analysts have praised Apple's new iTunes and iDVD software. But they have questioned whether the software will provide much of a boost to sales. None of Apple's consumer models has a rewritable CD drive, although many industry watchers believe Apple will add such a drive to the iMac, perhaps as soon as the company can sell its existing inventory.

The free software itself is clearly popular. Apple said on Tuesday that more than 275,000 copies of the program have been downloaded in the first week.

"It's clear that iTunes is a huge hit with Mac users," Jobs said in a statement.

As for iDVD, the only model that currently comes with the necessary SuperDrive is Apple's top-of-the-line $3,500 Power Mac, a machine aimed primarily at professionals.

In addition to updating its outlook Wednesday, Apple is expected to give a fresh look at its inventory situation. When Apple initially lowered its fiscal first-quarter outlook in October, the company said it believed it had eight weeks of inventory on hand. However, as sales continued to slow, Apple said in December that its stock actually amounted to about 11 weeks worth of unsold machines.

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Apple's Titanium PowerBook: A closer look
Greg Joswiak, Apple Portable Products senior director
The company offered a number of rebates good through the end of last year, but analysts said Apple's inventory dipped only slightly. On Jan. 1, Apple cut prices on its PowerBook and Power Mac machines ahead of the new product introductions and turned a $300 rebate on its slow-selling Power Mac G4 Cube into a permanent price cut.

On Wednesday, Jobs may also put some numbers behind the strategy he unveiled at Macworld to turn Apple's computers into a "digital hub" for a variety of connected consumer electronics such as camcorders and DVD and MP3 players.

Apple could also announce some changes to its retail strategy. The company has started making plans to open its own stores, although it has thus far refused to comment on the moves.

 

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