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PC maker expects to shake off slowdown

Los Angeles Times Staff Writer

Apple Computer Inc. on Wednesday reported a loss of $8 million for the last three months of 2002, the first time Apple has recorded two consecutive quarterly losses since founder Steve Jobs returned to the company's executive offices in 1997.

The back-to-back losses underscore the continuing struggle Apple is facing against the dominance of personal computers running rival Microsoft Corp.'s Windows operating system. The loss for the first quarter of Apple's 2003 fiscal year, which amounted to 2 cents a share, was in contrast to a profit of $38 million, or 11 cents a share, in the same period a year earlier.

But Cupertino, Calif.-based Apple, known for the sleek design of its personal computers, said it expected to shake off the traditional slowdown in the January-to-March quarter with flat revenue and a slight profit.

"We have a very strong new product pipeline for 2002," said Jobs, who is chief executive. "We're going to keep investing through this downturn and continue to move our products and distribution channels ever further ahead of our competitors, so that when the economy rebounds we will be positioned for growth."

Apple said revenue was $1.47 billion for the three months ended Dec. 28, up 7% from the year-earlier quarter. Excluding one-time charges of $17 million for after-tax restructuring and $2 million for an after-tax accounting transition adjustment, Apple would have recorded a net profit of $11 million, or 3 cents a share. That was in line with Wall Street expectations.

Apple shares dipped 18 cents to $14.43 in regular Nasdaq trading before the results were announced. They dropped as low as $13.96 in after-hours trading before recovering to $14.32.

Apple has been struggling to regain market share in the face of plummeting prices for PCs. The company, which is famous for its Macintosh desktop computers, claimed 9.6% of the market in 1991, but just 2.3% in the third quarter of 2002, according to research firm IDC.

At last week's Macworld trade show in San Francisco, Jobs unveiled the biggest and smallest laptops Apple has ever produced, which he said would help Apple win new customers. Analysts said the introduction of new products will help it through the post-holiday quarter, when sales are normally down.

"Every time they launch a new product, they get a good lift that first quarter," said Kevin Hunt of Thomas Weisel Partners in San Francisco. "One positive you can take away is that most analysts will probably have to raise their estimates for revenue this quarter."

Apple said it will increase spending on research and development in the current quarter to position itself for an eventual recovery.

"We don't think it's in the best interest of shareholders or customers to focus on short-term profits and growth," Chief Financial Officer Fred Anderson told analysts in a conference call. "We have an incredibly strong pipeline of future products coming. We've laid the foundation as we come out of this downturn to substantially grow our market share."

Apple said it delivered 743,000 computers during the quarter, about even with the year-ago period. Sales of professional-grade G4 desktops "continue to be a disappointment," Anderson said.

Apple reported continued slowness among creative professionals such as graphic designers, a main constituency of Apple buyers. It also is suffering in the education market, especially with California and other states facing budget crises.

But Apple could increase its market share in the key consumer segment this quarter with its new PowerBooks, and all-new and updated software applications unveiled at Macworld, Thomas Weisel's Hunt said.

"The consumer market is doing pretty well," said Hunt, who does not own Apple shares and whose firm has no banking relationship with the computer maker. "The way they're positioning themselves is the way consumers are moving, so they should gain share there."Apple's 51 retail stores were a bright spot, Anderson told analysts. They brought in $148 million in revenue, up from $102 million in the preceding quarter. Anderson said he was encouraged that more than half the customers who purchased computers at the stores last quarter were either Windows users or first-time computer buyers.

By adding new stores and placing Apple salespeople in more than 170 CompUSA stores around the country, "we are increasingly controlling our point of sales," Anderson said. "The strategy ... is starting to pay off."

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