Apple Drops Shocker, Warning of Lower Q4 Profits

To say that Apple Computer shocked Wall Street analysts and investors by warning late last week that earnings in its fourth fiscal quarter will be well below expectations would be a major understatement.

Apple's stock plummeted 40 per cent Thursday night in after-hours trading following the announcement by the company that profits in the three-month period ending Saturday will be "substantially below" earlier projections because of slow computer sales this month. The price of the computer maker's stock, which was $US53.50 per share at the close of Thursday's regular trading, continued falling Friday morning and was trading at about $US26 per share.

Apple CEO Steve Jobs said in a statement that fourth-quarter operating earnings are now likely to be about $US110 million, 33 per cent lower than the $US165 million the company had been expecting. "We've clearly hit a speed bump," Jobs said. The sales slowdown is "disappointing," but Apple executives "remain positive about our future," he added.

Jimmy Johnson, a financial analyst at A. G. Edwards & Sons Inc. in St. Louis, said the profit warning took him by surprise. A. G. Edwards downgraded its rating on Apple's stock, as did Merrill Lynch & Co., Bear Stearns & Co., Morgan Stanley Dean Witter and PaineWebber Inc.

Henry Voskoboynik, an analyst at Forum Capital Markets in Old Greenwich, Conn., said Apple is being hit by softer demand for PCs from buyers. "They have a lot of work to do," Voskoboynik said. "[But] the entire PC market is experiencing weakness, and they're getting unjustly punished."

Fred Anderson, Apple's chief financial officer, said sales have slowed down across all geographies this month. Sales to the education market in particular were lower than expected, he noted, and the company's new Power Mac G4 Cube machine got off to a slower sales start than had been projected.

The final fourth-quarter numbers are due to be announced Oct. 18, Anderson said. "We are currently re-evaluating our plans going forward and will provide lower growth targets for next quarter and the next fiscal year" at that time, he added.

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