Spending cuts helped Apple

Apple Computer Inc.'s better-than-expected third-quarter results are due primarily to operational spending cuts brought about by restructuring and the company's ability to finally deliver its high-end personal computers to patient customers.

Plagued by distribution difficulties last quarter, Apple wasn't able to deliver its newest lines of Power Macintoshes to its channel partners fast enough to keep pace with demand. As a result, Apple posted a horrendous $716 million loss last quarter.

Three months and 2,100 employees later, Apple managed to cut operating costs from $2.3 billion in its second quarter to $1.8 billion.

Those cost reductions combined with a slight revenue increase of $100 million, mainly due to surging sales in Japan and a huge backlog of PowerMac orders, help explain why Apple surprised its critics with a per share loss of 44 cents.

First Call consensus figured Apple would report a loss of 61 cents per share.

"The company continues to progress with its restructuring initiatives, as is evidenced by the significant sequential decrease in operating expenses," said Apple's Chief Financial Officer Fred Anderson. "As anticipated, we experienced sequential revenue growth, largely on the strength of our high-end Macintosh products and robust education market sales."

A quick glance at Apple's balance sheet shows some areas that contributed to the better-than-expected quarter.

The operating loss for the quarter was substantially reduced to $60 million, down from $186 million in the second quarter, excluding restructuring costs and a write-off of on-going research and development.

Similarly, operating expenses dropped 17 percent from $489 million to $409 million during the same period.

A revenue increase of 8.5 percent from the second quarter was attributed to a 32 percent hike in PowerMac sales and continued growth in the education market. Surprisingly, PowerBook sales dipped by 29 percent.

While sales did increase by more than 8 percent in the third quarter, the reasons behind the improvement speak to the basic problems Apple is desperately trying to correct.

Last quarter, Apple had more than $420 million in orders that it couldn't fill. That figure dropped to $236 million in the third quarter and accounted for a sizable portion of the increased revenues.

Also, its inventory of finished products increased from $270 million to $336 million mainly because outdated models were replaced by the popular 8600 and 9600 PowerMacs.

Apple, based in Cupertino, Calif., still has more than $1.2 billion in cash reserves, down about $152 million from the previous quarter. The bulk of the cash expenditures were attributed to restructuring costs and building up inventories for the traditionally stronger fourth quarter.