Apple predicts rotten first quarter

Apple Computer Inc. became the latest PC vendor to warn of a bad December quarter, but the company said its recovery will start quickly.

After market close Tuesday, the vendor of personal computers using the Mac operating system said it expects a fiscal first-quarter loss ranging between $225 million and $250 million, excluding investment gains, on revenue of roughly $1 billion.

First Call Corp.'s survey of 16 analysts had been predicting a profit of 3 cents per share on sales approximating $1.6 billion, for the quarter ending Dec. 30.

Shares of Apple fell to 14.9062 in after-hours activity on the Island electronic communications network, following the warning. Apple rose 0.3125 to 17 in Tuesday's regular trading, prior to the first quarter pre-announcement.

CFO Fred Anderson slashed his full-year revenue forecast for Apple. Anderson now sees fiscal 2001 revenue of $6 billion to $6.5 million, down at least 13 percent from the company's previous target of $7.5 billion to $8 billion in sales. That earlier target was itself reduced from prior expectations.

However, Apple sees sustained profits returning by the fiscal second quarter. Although the company's reported revenue in the first quarter is expected to be about $1 billion, Apple expects the actual amount of product sold to total about $1.5 billion. Apple can generate a profit on revenue of at least $1.4 billion, Anderson said.

This quarter's loss is largely driven by the company's move to clear excess product in a slower-than-expected holiday season, CEO Steve Jobs said, during a conference call with analysts.

Apple originally thought it ended in September with eight weeks of inventory in its sales channels, but that figure turned out to be 11 weeks, Anderson told analysts. Despite that greater-than-expected glut, Apple still plans to enter calendar 2001 with nearly normal levels of inventory.

"We did not plan the aggressive promotions that we now have, and the price reductions in some of the international geographies where you can't have rebates in the Power Mac line," he said, adding that other PC vendors are also stepping up efforts to jumpstart sales. "What we see is tremendous amounts globally of promotional sales going through the channel. So we see a lot of competition on the price level going on right now."

Apple's first quarter expenses will include an extra $135 million for unplanned promotional costs, he said.

The company will also record $115 million in charges related to component orders that were cancelled because of disappointing sales. Apple saw "significantly slower than expected" sales in the first two months of the quarter, in all parts of the world.

"We were below expectations, but slightly above last year, in October," Anderson told analysts. "But we didn't see the spike that we would've expected in November. Particularly in the second half of November, you normally see a huge spike as you enter the holiday season, and we didn't see it."

The company wants to drastically reduce its channel glut to pave the way for new products next year, including the much-anticipated Mac OS X, slated for release in early 2001. But Apple executives cautioned that the current slowdown in the PC industry could last for awhile.

"Our feeling - and it's just a feeling right now - is that we're seeing a broad economic slowdown, and it's affecting many industries, including us," Jobs said.

"We have an Arnold Schwarzenegger balance sheet, with more than $4 billion in cash," Jobs said. "There's no question that Apple can weather this quarter and even a major economic downturn if it comes, without missing a beat."

Tuesday's news marks the latest disappointing Pre-announcement from a consumer-oriented seller of computers. Gateway Inc. and Micron Electronics Inc. recently warned about the December quarter.

Less consumer-centric PC vendors such Compaq Computer Corp. and Hewlett-Packard Co. have reported sales on track with their expectations so far.

This will be the second disappointing quarter in a row for Apple. Shares of Apple plunged in September after the company surprised Wall Street with a fourth quarter warning.

Apple subsequently missed lowered fourth quarter estimates and cut expectations for fiscal 2001.

This time, the company was "simply not prepared" to deal with an industry-wide downturn going on even though Apple dealt with its company-specific problems, Jobs said.

"We're confident Apple can weather the cycle and possibly come out stronger for it," he said. "We're on to next quarter."