updated 06:00 pm EDT, Tue June 18, 2002
We have highlights from today's conference call with Apple CFO Fred Anderson, who discussed Apple's anticipated profit and revenue shortfall for its third fiscal quarter.
Apple CFO Fred Anderson today explained that Apple's revised guidance for its third financial quarter ending in June stemmed from three key factors: (1) a nonexistent seasonal uplift in sales; (2) soft demand in the consumer and creative markets; (3) a lagging global economy, including weakness in Europe and Japan.
Anderson said that the revenue shortfall of about 10% was mitigated by higher-than-expected gross margins. In the March conference call, Anderson told analysts that he expected gross margins to be slightly lower than the 27.4% achieved in the second quarter. Anderson said he now expects gross margins in the June quarter to be higher than the previous quarter -- perhaps as a high 28% -- primarily due to reduced component costs, including DRAM prices which have fallen 50%.
Apple said it expected to manage channel unit inventories to be flat with the March quarter, when it exited the quarter with 4.5 weeks of channel inventory. Apple also said it would continue to exercise tight expense control, but emphasized that it was continuing to invest in its future with the recent introductions of new products such as Xserve and eMac. "We’ve got some amazing new products in development, so we’re excited about the year ahead. As one of the few companies currently making a profit in the PC business, we remain very optimistic about Apple’s prospects for long-term growth," according to CEO Steve Jobs.
Anderson also remarked that most other PC vendors were experiencing soft consumer demand and cited similar reports by Intel, when discussing the lagging economy in Europe. Product sales were down across Europe, according to Anderson. He refused to "speculate" as to whether the $100 flat-panel iMac price increase in late March had a softening effect on consumer demand and reiterated that Apple believes the flat-panel iMac is still "very competitive" in the marketplace. Due to the demand for flat-panel iMacs and a backlog of orders, Apple said that strong April sales was in contrast with other PC vendors.
Apple said it usually experiences a seasonal uplift in late May and early June as a result of the "Grads & Dads" spending, referring to graduation gift spending and traditional gift purchases for Father's Day. While emphasizing that Apple had not seen a decrease in unit sales, Anderson did note that the seasonal spark had not materialized as the company had expected.
Anderson also said that the slowdown in the professional markets, which the company had noted previously, had not rebounded. Apple has typically had a very strong foothold in the creative markets, especially in advertising and publishing. In the past, Apple attributed the purchasing delays to a lack of professional applications for Mac OS X, such as Photoshop and QuarkXpress. Although Adobe announced Photoshop 7 in mid-February, the company only recently began shipping Photoshop 7 in mid-April. Quark has yet to release a version of Quark Xpress for OS X. In the conference call, Anderson hinted that the upcoming release of "Jaguar', a major upgrade to Mac OS X slated for later this summer, might stimulate sales. Anderson refused to speculate as to whether professionals were waiting for more processing power or the release of other professional applications.
Education sales were still inline with expectations, but Anderson cautioned that two weeks still remained in June, which he said was historically the strongest month for educational sales. Anderson refused to comment on whether Apple was seeing product sales shift to lower-priced products; on specifics of sales trends in each of the four main product areas (iBook, iMac, PowerBook, Power Mac); and on guidance for the September quarter.
Responding to one analyst question, Anderson said that Apple's retail segment was not immune to the soft consumer market, but said that Apple still planned on expanding its retail presence from the 30 stores currently open to 50 by the end of year. Anderson recited anecdotal evidence suggesting that the recent Real People ("Windows Switcher") campaign is driving traffic to the stores, noting that some customers have walked into Apple retail stores declaring "I'm a Switcher." Anderson also cited IDC data , which showed a 0.4% US market share gain and a 0.3% global marketshare gain in the March quarter.
Apple will report third quarter earnings on July 16th.