Apple's turnaround comes full circle
On Wednesday, the resurgent personal computer maker will report its first quarter results with analysts expecting a profit of 68 cents a share, according to a survey by First Call Corp.
But don't be surprised if Apple beats the consensus number by as much as dime a share.
Analysts--many of whom wrote Apple off back in the dark days under Gil Amelio's watch--are expecting Apple to report first-quarter sales of about $1.8 billion. The 68-cent-a-share estimate is largely a product of conservative hedging as some analysts are looking for earnings of as much as 80 cents a share.
It was almost exactly one year ago that Apple began to show signs of life.
With interim CEO Steve Jobs back at the helm, Apple stunned Wall Street by posting a profit of $47 million, or 33 cents a share, on sales of $1.57 billion. The stunning reversal interrupted a six-quarter losing streak over a period that saw Apple lose more than $1.8 billion.
There were numerous takeover rumors. Maybe Oracle? Maybe Sun Microsystems?
Impressed as they were, analysts saw the surprise profit as merely the end result of massive cost cutting. Indeed, Apple did layoff more than 7,000 employees through those dark days, more if you count contractors and temporary workers.
But this quarter promises something different.
For the first time in 11 quarters, Apple is expected to report a gain in year-over-year revenue.
Bloodletting over
"The difference between Apple today and Apple of last year is enormous," said Louis Mazzucchelli, an analyst at Gerard Klauer Mattison. "What's not different? They cut their costs, have some hot products and have recaptured the market's imagination."
Mazzucchelli expects Apple to post a profit of 78 cents a share in the quarter, making him one of the biggest Apple bulls.
"They had a lot of diamonds in the rough," Mazzucchelli said. "With Steve Jobs' charisma and the complete overhaul of its business model, they were able to make them shine."
iMacs rule
Most of that optimism is derived from the record sales of its hip iMac PCs. Apple told the MacWorld trade show last week that 800,000 iMacs have been sold in less than half a year, making it one of the most successful computer launches ever.
Combining the prowess of the iMac with its popular G3 machines, Apple now finds itself in a position to expand gross profit margins rather than beg for a small piece of market share.
Apple's stock price reflects this renaissance.
One year ago, the stock closed at 18 1/8 ahead of the first-quarter earnings report. Some said even that price was too steep considering it had just reported a loss of $161 million, or $1.26 a share, on sales of $1.61 billion in the fourth quarter of 1997.
On Tuesday, the stock closed up 1/4 in a lousy trading day for tech stocks to 46 1/8, near its 52-week high.
Now, 10 of the 19 institutional investment firms following the stock rate it a "buy."
For all the rosy sentiment, however, there's a sense that Apple might be on the verge of running out of steam.
"Apple's at a peak right now," said Jim Poyner, an analyst at CIBC Oppenheimer. "They are likely to see a plateau-ing of iMac shipments going forward and that is going to make the stock a lot less interesting."
No. 1 target
And as hot as the iMac is now, it's become Target No. 1 for competitors in the low-priced, entry-level market.
Apple also must improve its market share--currently about 5 percent worldwide--to attract more developers to its platform.
But Rome wasn't built in a day either.
"I think you'll see higher profit margins and more innovative products as the year goes on," Mazzucchelli said. "I told people Apple wasn't dead a long time ago and now they are finally starting to listen."