Apple Q3 Earnings Beat Wall Street Expectations

Apple Computer Inc. topped the expectations of Wall Street analysts today by reporting third-quarter income of US$101 million, or 65 cents per diluted share.

Apple Computer Inc. topped the expectations of Wall Street analysts today by reporting third-quarter income of US$101 million, or 65 cents per diluted share.

Revenues for the quarter, ended June 26, were $1.4 billion, equal to revenues of the prior quarter, when income was $55 million, or 38 cents per share, Apple said. In the same period last year, Apple reported $1.7 billion in revenues and a net loss of $56 million, or 44 cents per share.

The quarter's results were affected by a $26 million net favorable impact from non-recurring items, including the initial public offering of ARM Holdings PLC, in which Apple is a shareholder. Without these non-recurring items, Apple's net income for the quarter would have been $75 million, or 50 cents per diluted share, the company said.

"Apple had a terrific quarter -- we sold a record number of Power Macintosh G3 computers, customers love our new PowerBooks, Apple earned its highest profits in years, and we ended the quarter with the lowest inventory level among the major PC players," said Steve Jobs, Apple's interim CEO, in a written statement.

Jobs predicted the company would see its third consecutive profitable quarter earlier this month at MacWorld in New York.

Analysts polled by First Call Corp. estimated the company would post earnings of 33 cents per diluted share.

The actual results represent the company's best quarter since the third quarter of 1995, said Fred Anderson, Apple's chief financial officer, in an upbeat teleconference with press and analysts.

Apple's growth in the near future will be driven by sales of iMac, the consumer desktop system on which the computer maker has pinned its hopes for reentry into the mainstream consumer market. iMac could help lift Apple's revenues by as much as 5 percent during the September quarter, Anderson said

iMac is due to be released in the U.S. Aug. 15, with its international debut scheduled for about two weeks after that, on Sept. 1, Anderson said.

Anderson refused to comment on whether Apple will release other versions of iMac, which is currently available in a single configuration priced at $1,299.

"As to whether we'll have additional products in the iMac group, I'll wait for Steve Jobs . . . to make that announcement and surprise you," Anderson said.

Apple was unable to keep up with demand for its PowerBook notebook products during the quarter, coming out of the quarter with orders unmet, Anderson said.

Apple has previously been dogged by an inability to keep up with customer demand for its products, affecting the company's bottom line. But Anderson downplayed the issue.

"I wouldn't characterize it as having production issues," Anderson said of the backlog. "It takes a couple months to ramp any new product up to normal volume," and notebooks are more complex products to build than desktops, he said.

Apple hopes to pear the backlog down to "a manageable level" by August, Anderson said.

Apple's G3 desktops and powerbook computers, along with iMac, have reenergized the software community behind the Macintosh platform, Anderson said.

In the longer term, Anderson said, many applications will be built in Java -- which is touted as a platform-neutral programming language -- making Windows-versus-Macintosh software availability issues moot, he said.

"We plan on having an incredible Java run time on the Mac -- as good as or better than anyone else's. As Java comes along we expect the Windows versus Macintosh issue to go away," Anderson said.

Gross margins for the quarter were 25.7 percent, up from 24.8 percent in the prior quarter. Gross margins will likely come down slightly in the coming quarters when iMac is introduced.

International sales accounted for 43 percent of the quarter's revenues, though sales were strongest in the U.S., Anderson said.

In the near term, Apple's business will continue to be strongest geographically in the U.S., he said. Business in Japan and Europe is "fairly stable," Anderson said. iMac should help give a kick to sales in Japan, where 40 percent of the installed customer base are consumers, Anderson said. The rest of "the Asia pack" made up only about 5 percent of Apple's business in the quarter, he said.

Based in Cupertino, California, Apple can be contacted at +1-408-996-1010 or at

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