November 4, 1999 3:15 PM PST
Supply problems persist for Apple
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It all depends on whether the company can overcome a manufacturing backlog--and, for the moment, that remains up in the air, analysts say.
Apple saw its stock hit an all-time high this week, based in part on expected strong demand for products such as the iBook notebook and the upscale G4 desktops. The problem, however, is that the company is dealing with a backlog of orders in its sales channels, according to analysts. October sales were severely affected, sources said, and the $999 iMac has yet to ship.
And while availability of Apple's newest computers has started to improve, significant pressure exists to sell enough systems in the next two months to meet profit expectations for the company's first fiscal quarter of 2000, analysts said.
"With almost 70 percent (quarter-to-quarter) unit growth forecasted for calendar [fourth quarter], product availability will be the key determinant for Apple's earnings per share," Morgan Stanley Dean Witter analyst Gillian Munson wrote in a report today. "As a result, channel checks will be critical this quarter."
The high demand and low inventory situation began last quarter, which resulted in lower-than-anticipated earnings. The company was mostly affected by component shortages and natural disasters that have resulted in an unusually severe shortage of iBooks and high-end Power Macintosh G4 desktop computers.
"We're in high-volume production and are shipping all product lines in high volume. We're thrilled that demand is so great," Apple spokesperson Katie Cotton said. She declined to comment about availability of specific products, such as the $999 iMac.
The company last month decided to ship slower G4 computers than customers had ordered in order to meet demand. The move touched off a firestorm of complaints. Apple eventually relented.
Has the strategy started to pay off? The answer is a qualified yes. While more G4 computers have become available, in general, product shortages extended through the month of October and continue to persist for some retailers, according to Munson and confirmed by resellers contacted by CNET News.com.
Last month, Apple reported some $700 million of back-ordered products. The good news, Munson said, is that most resellers are optimistic they can work off those orders by the end of the month, with the exception of the iBook.
Yet progress, has been spotty: Most resellers have only been able to work off 10 to 40 percent of their back orders, Munson estimated. Availability of G4 systems improved, but the fastest and highest priced 450-MHz systems continue to be a rare find. Also, the revised iMacs are becoming available, but the $999 model that could prove to be one of the more popular systems during the holidays is still not available in quantity, she wrote.
On the upside, the $1,499 iMac DV Special Edition is proving to be very popular. This model is $200 more than the regular iMac DV, which could help offset lower profits from sales of the $999 iMac--if those show up on shelves.
"We remain a bit concerned that the $999 iMac has not shipped yet. This is especially important as the low-end iMac should be one of Apple's strongest Christmas products. Any delays beyond the next week or two could have serious implications as the holiday buying season is nearly underway," Munson said in her report.
Apple's online store shows that $999 iMac's ordered today are expected to ship within 20 days. Sales associates at MacMall, one of the largest catalog and online resellers of Mac products, report that the system is expected to be in stock by November 15.
CompUSA's online store estimates that customers will receive their systems in around the same amount of time. A number of resellers do have the older, slower 333-MHz iMac available for around $899.
Other analysts aren't as concerned--not yet, anyway--about Apple's ability to fill orders.
"We view Apple's near-term outlook with increasing confidence as it appears October sales and production are tracking in line with plan," Andrew Neff, analyst with Bear Stearns said in a note to clients yesterday, according to Reuters. "All four product lines are ramping production, demand remains strong, and we hear that G4 product availability is improving." (See related story)
So far, investors have remained bullish on Apple's stock in spite of the product availability issues. The company's stock has risen to new highs and was trading this afternoon at 82.88, a modest increase over yesterday's close.
Some of the investor reaction can be attributed to the warm welcome that Akamai received from investors. Apple invested in Akamai, whose products help speed delivery of content over the Internet. After going public at the end of October, Akamai's share price skyrocketed to more than $200 per share. Even at today's level of 173, the company is valued at more than $15 billion dollars--more than Apple itself.
Also, some analysts think Apple will be able to pick up market share as Packard Bell begins its exit from the consumer PC market.
While Packard Bell mainly sold sub-$1,000 computers, Salomon Smith Barney analyst Richard Gardner said that he believes Apple, as well as Gateway, can benefit from the exit "because an increasing percentage of their sales and growth will come from the low-end," he wrote in a report.
Packard Bell's exit frees up about $3.5 billion worth of computers, he estimated, a portion of which Apple should be able to pick up.
Reuters contributed to this report.