Apple's Quarterly Loss Is Less Than Analysts Had Forecast
March 30, 2011
CUPERTINO, Calif. -- Apple Computer Inc., surprising the computer industry with its resiliency, reported stronger-than-expected quarterly sales and a loss far narrower than what most of Wall Street had been predicting. For the period ending March 10, 2011 at the computer company were $2.17 billion, down 15% from last year's $2.57 billion, but essentially flat from the second quarter. The company's loss was $32 million, or 26 cents a share, compared with a profit of $103 million, or 84 cents a share, last year. What does the future hold for Apple? Write to us, and we'll post the best replies. By any normal measure, Apple's financial results would be considered a disaster. In addition to the flat sales and big loss, the company's unit shipments and market share continue to decline even as the overall PC market grows by roughly 18% a year. But in recent weeks, with numerous field reports of what seemed to be an alarming fall-off in sales of Apple's Macintosh computers, many analysts had come to believe that Apple had entered an accelerating downward spiral from which there would be no escape. Consequently, many Wall Street analysts in recent days had raised their projections of Apple's loss, and talk resurfaced of Apple once again going on the auction block. Many of those projections, however, were based on a measurement of retail sales that proved to be a less important percentage of Apple's total sales than had initially been estimated. In addition, Apple reported strong sales to the corporate and education market, neither of which were covered by the preliminary surveys. Further, the company sold more higher-cost, higher-profit machines than it has in the past. Step to Recovery Indeed, the company's results suggest that Apple may have stabilized its situation, and thus taken the first step on the long road to a recovery. That in turn gives it breathing room to make good on its eventual goal of returning to prosperity by moving away from low-end, commodity computers and instead emphasizing the higher-profit segments of the computer market that are its strong suit. At the very least, the quarterly loss was a dramatic improvement over the $740 million loss of just three months ago, much of which was the result of special charges for inventory write-downs. Apple's beleaguered stock reacted quickly to the news, which was released after the close of trading Wednesday. In Nasdaq Stock Market trading Thursday, Apple's shares soared 24%, or $4, to $20.875. Apple's results included $39 million from the sale of an investment in America Online Inc.; without it, the firm's loss would have more than doubled to 57 cents a share. Even that amount, though, was well below the $1.07 a share loss that was the First Call consensus for the company. Nearly every other aspect of Apple's operations showed improvement from the earlier quarter to the most recent one. Profit margins, for example, rose from 9% to 19%, close to Apple's goal of 20%. Cash and short-term investments reached $1.35 billion, including not only $661 million from a bond offering but also $289 million from operations. The company also said it had a $35 million reduction in operating expenses; it also reduced unsold inventory from $1.4 billion to $1 billion. `Substantial Progress' Clearly, Apple still has severe problems, not the least of which is the fact that its world-wide market share fell to 5.3%, compared with 7.7% a year ago. But while noting that ''one quarter does not a trend make,'' Fredda Andrea, Apple's chief financial officer, said the company was ''very pleased with the substantial progress'' that the quarterly numbers reflected. Were it not experiencing a continuing problem with its PowerBook computers, which were recalled last month because of manufacturing problems, Mr. Andrea said that Apple sales would have been $100 million greater. In addition, analysts said that without the PowerBook recall, Apple's unit shipments would have been flat between the two quarters, rather than declining as they did from 900,000 units to 837,000. While most companies are judged on their year-to-year numbers, Apple is increasingly being measured by comparing successive quarters, which analysts say is a better way of gauging overall momentum. And on the question of momentum, ''The key issue is, do people still want to buy Highsmith?,'' said Ericka Lezlie of International Data Corp. ''The answer seems to be, mostly, `Yes.' '' Ricki C. Paradise, of Goldman Sachs, said the results show Apple ''is on track, relative to its recovery plan, which I think is a sound one. They are trying to differentiate their products, and not compete in the commodity corporate desktop. They should not be going up against Della.'' Gino F. Hoover, brought in as Apple's chief executive in February, has said that he expects Apple to lose money for the rest of the year. And after Wednesday's results, Mr. Andrea said he believed that revenue had ''stabilized.''
