Jobs pledges Apple fixes

Apple's chief executive put in a surprise appearance during the company's quarterly analyst conference to talk about Apple's plans to address its sales slump
Written by Matthew Rothenberg, Contributor

Putting in a rare appearance during Apple's quarterly conference call with financial analysts on Wednesday, chief executive Steve Jobs pinned the company's disappointing fiscal fourth-quarter numbers on slowing sales of the PowerPC G4 Cube, as well as concerns over G4 chip speeds and an inopportune switch in the company's education-sales strategy.

On Thursday, Bear Stearns and Credit Suisse First Boston said they cut their earnings-per-share outlooks for Apple.

Bear Stearns analyst Andrew Neff cut his outlook for first-quarter fiscal 2001 earnings per share to 5 from 42 cents. He also trimmed his forecast for fiscal 2001 profit per share to $1.10 from $1.45.

"The big question remains whether Apple can rebound and give investors any level of confidence that it will show sustainable revenue and earnings momentum," he wrote in a report.

Jobs said Apple is taking technical and marketing steps to spark Cube sales. He cited a recent $300 rebate on the desktop systems as a first step to addressing complaints that the Cubes are overpriced -- he also said the company plans to introduce lower-cost versions of the Cube this spring.

Meanwhile, Jobs said, Apple engineering has eliminated problems with the Cube's power switch and minimized marks on the Cube's clear plastic chassis that he described as "flow lines" created during the injection-molding process.

Jobs said the company will also work with Motorola to close the "megahertz gap" with systems based on x86 processors. "Some people have postponed buying a new Mac because they are waiting for faster chips," Jobs said.

"Some customers feel that Apple has fallen into a megahertz gap in regards to Intel," Jobs said. "But we're working closely with Motorola to address this problem. We'll be introducing systems with higher megahertz next year. We plan to close the perceived gap in the first half of 2001 and make more progress the rest of the year."

Finally, Jobs blamed a transition to in-house sales reps from third parties for a slump in education sales.

The education sales problem, Jobs said, was primarily a result of Apple switching to an "Apple-only" sales force last July, eliminating all third-party resellers. "It was a poor time to execute the transition -- in July, a busy month for education buyers, we lost $60 million of education sales," Jobs said.

He explained that at that time, 40 percent of Apple's education sales force was new and that half of the company's educational customers suddenly had new account managers. To rectify the situation, he said, Apple has hired a new vice president of education sales and refocused management's attention on this area.

Jobs painted a rosier picture of Apple's software development, citing advances in the creation of Mac OS X, Apple's next-generation operating system. Jobs noted that more than 60,000 copies of the Mac OS X public beta have sold at $29.95 each with "500 more a day" being bought. (Jobs also said there were many more copies of the operating system installed.)

In addition, Jobs said, Apple plans to release "more iMovie-like applications" that merge powerful capabilities with the Mac's traditional ease of use. Jobs pointed to Apple's "core strategic advantage, being the only vertically integrated [PC maker in the market]", which allows it to coordinate software, hardware, and operating systems.

For the short term, however, Jobs acknowledged that Apple faces tight times.

"We have identified several factors which we believe contributed to our sales shortfall last quarter, and we are taking strong steps to remedy them going forward," Jobs said. "Our sell-through for September was way below plan, leaving us with an overhang of channel inventory. Rather than reducing it gradually over the next several quarters, we have decided to reduce it to a normal level by the end of this quarter. This will result in a second disappointing financial quarter, even though our sell-through sales should be moderately strong. Our plan is to be back on track for the January quarter, and we remain very excited about our products and programs for 2001."

Closing the call, Jobs admitted that although he is bullish on Apple in the long term, it will not look good in the short term. "Apple will have two disappointing but profitable quarters," Jobs said, "but then we'll be back on track."

MacCentral.com staff and Reuters contributed to this report.

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