Apple has added its name to the ever-growing list of technology companies issuing profit warnings. The company said it will report its first loss in three years for its first fiscal quarter of 2001.
Due to slower than expected sales in October and November, Apple expects both its first-quarter earnings and revenue will be well below its previous expectations, according to senior company executives. The first quarter is due to close December 30, 2000 with the final results to be announced January 17, 2001.
Apple is predicting it will record a net loss, excluding investment gains, of between $US225 million and $250 million, on revenue of around $1 billion. This latest revenue estimate is $600 million less than the company had forecast on October 18 on the release of its fourth-quarter results. Apple said the revenue shortfall is related to lower than expected channel sales worldwide, while the net loss is related to cancellation charges for components.
"Apple was simply not prepared to be hit by three major problems at the same time," Apple co-founder and chief executive officer Steve Jobs said. One of the problems relates to a variety of internal issues at Apple, while the other two were a slowdown in demand for PCs and overall weakness in the worldwide economy, he said.
Jobs noted that the first quarter loss will be Apple's first quarter in the red since he returned to the company three years ago. "It's not something I'm proud of," he said.
A slowdown under way in the consumer computer market is likely to be "more than a one-quarter phenomenon," chief financial officer Fred Anderson said, adding that Apple has already scaled back its revenue predictions for the year. For fiscal 2001 Apple now expects revenue to be between $6 billion and $6.5 billion, down from the $7.5 billion to $8 billion, the company estimated back in October, Anderson said.
In the second half of November, Apple didn't see the "huge spike" in consumer demand for its products which it historically experiences as the US holiday buying season ramps up, Anderson said.
Both Anderson and Jobs stressed that Apple intends to return to "sustained profitability" in the second quarter of fiscal 2001. Jobs also emphasised Apple's financial health, saying the company has an "Arnold Schwarzenegger balance sheet" with more than $4 billion in investments on hand. "There's no question that Apple can survive this quarter," he said.
Apple is in the midst of trying to bring its inventory levels back to normal, a goal it hopes to achieve by the end of December, Anderson said. Channel inventory levels had been running as high as 11 weeks, with six weeks worth of inventory being the industry norm, he added.
"We want to enter (calendar year) 2001 clean," Jobs said, unlike rival vendors who are likely to be "burdened by long inventories of ageing products."
Jobs bemoaned Apple losing its top spot in the education computer market -- long one of its strongholds -- to Dell Computer. He said the loss was all Apple's fault and stemmed from the company "shooting itself in the foot" when it carried out a salesforce reorganisation earlier this year. With some new executives on board, Apple hopes to recover its number one position, Jobs added.
He also castigated his company for "completely missing the boat" on bundling CD-RW (rewritable) drives with its computers, as rivals like Hewlett-Packard have done. Jobs promised to fix that omission.
The Apple CEO said he believes that some customers are delaying buying Apple computers until the release of the next major version of the company's operating system, Mac OS X. The software is "on track" to ship early next year, he added. The public beta of the operating system has already sold around 100,000 copies, according to Jobs.
The profit warning isn't the first one Apple has issued this year. The company announced in September that weak sales during that month would adversely affect its fiscal 2000 fourth-quarter earnings, reported October 18. At that time, Anderson said Apple expected only a "slight profit" in the first quarter of fiscal 2001.
Apple released its profit warning after the markets had closed. The company's shares on Tuesday finished trading on the Nasdaq stock exchange at $17, a rise of 1.9 per cent on Monday's close.