Oops! Apple warns of Q4 shortfall

The Mac-maker delivers its first bad news after more than a year of spectacular growth. Time to panic?
Written by Larry Barrett, Contributor

After more than a year of spectacular sales and earnings growth, Apple Computer finally delivered some bad news Monday, warning that its fourth-quarter sales and earnings will fall well short of analysts' estimates. Its shares plummeted more than $11 a share in after-hours trading after closing up 2 1/8 to 79 1/16.

The company said it now expects to report net income of between $75m to $85m in its fourth quarter, well below most analysts' estimates of $120m. Company officials said the delay of planned deliveries of its G4 processor chips from Motorola is mainly responsible for the fourth-quarter shortfall.

The revised earnings estimate puts Apple closer to 45 cents to 50 cents a share in the quarter, well below the First Call estimates of 76 cents a share. Sales are expected to fall between $1.3bn to $1.4bn. Apple will announce its fourth-quarter earnings 13 October. "(Apple) really cut it close this quarter, and it didn't work out," said Louis Mazzucchelli, an analyst at Gerard Klauer Mattison. "These things happen. It's a new processor, new technology and Motorola is just having a hard time ramping up for this demand."

But before Apple investors slit their wrists, it's important to realise that these shipping delays in the fourth quarter will result in a huge backlog in its first quarter. "We are very disappointed that this quarter's deliveries of G4 processors will be lower than planned," said chief financial officer Fred Anderson in a prepared release. "Orders for the Power Mac G4 have been strong, and we anticipate ending the September quarter with a substantial order backlog." Apple says it has received orders for more than 150,000 Power Mac G4s since the product was rolled out three weeks ago.

Interim CEO Steve Jobs called the shipping delays "a temporary issue" and said "we hope to catch up early in the coming quarter."

First Call consensus expects Apple to earn 89 cents a share in its first quarter. "We knew the numbers would be lighter," Mazzucchelli said. "They're going through three major product transitions right now. It also looks like there could be some constraint on the highest speed parts in the first quarter, too."

In the fourth quarter of last year, Apple stunned Wall Street when it earned $106m, or 68 cents a share, on sales of $1.6bn. First Call consensus had expected it to earn only 49 cents a share that quarter. Last quarter, Apple raked in $114m, or 69 cents a share, on sales of $1.56bn.

Prior to Monday's late sell-off, Apple shares hit a 52-week high of 79 1/8 earlier this month after trading at a 52-week low of 28 1/2 in October. Sixteen of the 23 analysts following the stock maintain either a "buy" or "strong buy" recommendation.

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