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Apple back in the black
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January 14, 1998: 7:14 p.m. ET
Computer maker's profit follows losses of more than $2 billion
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NEW YORK (CNNfn) - Apple Computer Inc. on Wednesday reported a fiscal first quarter profit of $47 million, marking the first time the struggling computer maker has been in the black in more than a year.
The Cupertino, Calif.-based computer maker earned 33 cents per diluted share in the three months ended in December, compared with a loss of $120 million, or 96 cents, a year ago.
Revenues, however, fell 26 percent to $1.57 billion from $2.12 billion last year.
Apple shares (AAPL) ended the day up 1/4 to 19-3/4. No trades were reported after hours.
Apple's quarterly results were in line with the company's announcement last week when it surprised Wall Street by forecasting a profit for the all-important holiday quarter. Still, the results were another indication that the company's interim chief executive, Steve Jobs, is pushing the company to cut costs and increase sales of its new G3 line of speedy computers.
Over the last two years, Apple has posted more than $2 billion in losses, slashed thousands of jobs and cleaned out its executive suite. The last time Apple earned a profit was in the fiscal fourth quarter ended Sept. 30, 1996.
Some bright spots in the quarter included $15 million in Internet sales. Anderson said about 3,000 systems have been sold online. Currently, only G3 systems are available online, but Anderson said the company planned to add computers designed for the home and school as well as entry-level and notebook computers to the online roster.
Analysts were cautiously optimistic after hearing Wednesday's news.
"The wild card here is if they can rebuild their consumer franchise," said computer analyst Louis Mazzucchelli,of Gerard Klauer Mattison. "In order to do that, they need to have some aggressively priced products below $1,000 in the marketplace for Christmas of next year. I think they can do that."
He characterized Apple as a company close to a recovery although he said it would probably remain a niche player for the foreseeable future.
"The recovery puts them in a position where they can be a profitable company in a few strong niches with the potential to regain strength in a broader base," he said.
In a conference call with analysts and reporters, Apple's chief financial officer, Fred Anderson, said the Web sales have not generated a backlash from dealers.
Anderson said the website is designed for buyers who want to custom design systems. He said system prices are generally the same on the Web as in the stores.
"We view it as a process that enables us to educate the perspective buyers of Apple systems out there... We'd like them to buy from our online store, but if they don't and it facilitates a purchase from someone else, we're very happy. We see the potential of doing $100 million to $150 million a year through the Internet," he said.
Jobs said the December results show that the company's disciplined focus is paying off.
"We've concentrated on providing the powerful products our customers want at competitive prices and we continue to streamline our business and work with industry partners to facilitate this focus. Returning Apple to sustainable profitability is the company's No. 1 objective for fiscal 1998 and we believe we're making great progress toward that goal," he said.
Part of Apple's turnaround can be attributed to its slashing of research and development costs to $79 million from $149 million a year ago. It also cut administrative and sales costs to $234 million from $372 million.
Anderson said the company is confident it is dedicating a sufficient amount of resources to research. As far as Apple's concerned, bigger is not always better in that department.
"We still have a couple thousand people split between hardware and software. When you look back at the people that originally created the operating system, it was a small team. We've done creative things at Apple typically in small teams," Anderson said.
The company also reduced its inventories to $99 million in the December quarter from $141 million last year, a move the company said has helped its gross margins.
"Twenty-two percent gross margins mean that Apple gets more money per machine they sell. That's good. The other thing is that the operating expenses are substantially reduced. That means that the overhead involved in selling the machines has gone down substantially which reduces the break-even point for the company," said Mazzucchelli.
Still, the company conceded there's work to be done.
"Apple has been cleaning up the way it does business and that's good, but ultimately we need to begin growing this business. We need to make sure we have competitive cost structures so we can grow," said Apple's Anderson.
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