Apple Results Lackluster But Profitable

Apple’s third-quarter net profit of US$32 million fell far short of the company’s original guidance, but still defied the economic slump that has sent many technology companies into a money-losing tailspin.

The earnings represent a drop-off from the $61 million net profit Apple reported in the same quarter a year ago. Apple chief financial officer Fred Anderson acknowledged that this was a “particularly challenging quarter” but said the numbers represent apositive outcome in a month when tech stocks have dipped wildly.

“Even in this extended worldwide downturn, Apple is continuing to be profitable,” Apple CEO Steve Jobs said.

Fewer Macs Shipped

Jobs attributed some of Apple’s relative success to the company’s efforts to lure customers. Apple has aggressively sought new users with its “Switchers” ad campaign, which features different users talking about why they switched from a PC to a Mac.

But Apple shipped just 808,000 Macs in the third quarter, down 2 percent from the same quarter last year. As a result, revenue in the quarter dropped 3 percent to $1.43 billion from last year’s third-quarter figure of $1.48 billion. Gross margins fell to 27.4 percent from the 29.4 percent recorded in the third quarter last year.

Apple originally had anticipated $1.6 billion in sales and earnings of about11 cents per share for the quarter. But the company changed its guidance on June 18th in anticipation of third-quarter financials falling off. It adjusted sales estimates to between $1.4 billion and $1.45 billion and changed earnings estimates to between 8 and 10 percent per share.

Surprising Shortfall

Apple blamed part of the decline on a surprising sales shortfall for the flat-panel iMac, which previously was in such high demand that the company exited its second quarter with what Anderson called a “healthy backlog.”

PowerBook sales also fell short, Anderson said, and Apple did not see a seasonal rise in sales from Father’s Day and graduation, two events that typically boost numbers.

“The consumer market hasn’t supported Apple the way it had in the past two quarters,” IDC analyst Alan Promisel told the E-Commerce Times.

Sales to the education market also fell short, according to the company.

In addition, Anderson said, Apple’s customers have not upgraded in the way the company expected. Instead, they are deferring upgrades until the company’s Jaguar OS is released.

Economy at Fault

Anderson also pointed to hard economic times, saying that Apple “didnt fully anticipate” further deterioration of the economy. Japan and Europe also aresuffering slumps characterized by low PC sales. Anderson said Apple’s drop-off is in keeping with research firm IDC’s predictions for the overall PC market.

He noted that IDC has predicted a 15 percent slide in worldwide PC sales to consumers and a 16 percent decline in the small business market.

IDC’s Promisel said he believes the PC industry will see the same sort of less-than-impressive sales from other computer makers, such as Gateway.

He added that like other vendors, Apple underestimated the time it would take for the PC market to rebound. “It is going to be another year or so before we see demand [equal to] that of 1999 and 2000.”

Nothing To See Here

Nevertheless, Apple refused to see third-quarter results as an indication that the company is in trouble. “Our balance sheet is very strong, with $4.3 billion in cash, and we achieved a very efficient cash conversion cycle of 36 days,” Anderson said.

“We expect September quarter revenues to be approximately flat with the June quarter, and expect a slight profit for the quarter before any non-recurring items.”

Anderson said that Apple will retain some of its shine over the long term, noting that he remains “optimistic” about the company’s future.