Apple admits to core problems

Apple has issued a first-quarter profit warning, lowering its financial expectations drastically after admitting that it is facing major problems.

The company became the second PC manufacturer to issue such a warning amid declining sales after Gateway announced last month that poor November sales would hit its results.

"Disappointing market conditions have led us to reduce our outlook for December quarter revenue to about $1bn, from the $1.6bn we had projected in October," said Fred Anderson, Apple's chief financial officer. Anderson also confirmed that the company would report a net loss of between $220m and $225m for the last quarter.

Apple attributed the fall in earnings to an economic slowdown and the decline in PC hardware sales. Executives said the company did not see the usual rush of sales at the end of November, and that although sales in October beat those of last year, the figure is below expectations. The company discounted the price of its G4 Cube system in October to boost flagging sales.

It also admitted that it has encountered technology barriers with its preferred Motorola PowerPC processor. "Even though our PowerPC processors are actually faster than Intel's fastest processors for the tasks our customers commonly perform, their megahertz is slower," said Apple chief executive Steve Jobs.

Researcher IDC said that Apple hardware is also "not as price compatible as it could be", which has had a negative effect on sales.

"We were simply not prepared to be hit by three major problems simultaneously," said Jobs. "The results of these combined issues will be the first non-profitable quarter since I returned to Apple, and I'm not proud of it."

IDC predicts that the lull in hardware sales will end soon, but will do so on a piecemeal basis. It also warned that companies such as Apple need to place some of the blame for poor results on issues unrelated to the industry slump.

"IBM managed to return to profitability, so it's also to do with internal performance in Europe and tightening up its channel strategy and supply chain," said Andy Brown, a senior research analyst at IDC.

Despite the need for a drastic reduction in its financial outlook, Apple insists it can reverse its financial situation and return to profitability by the third quarter of fiscal 2001. It expects to report revenues of about $6bn for the whole of fiscal 2001.

Brown suggests that other PC manufacturers are likely to follow a similar pattern, and that it would appear that this is not a case of the hardware boom ending, just slowing down.

"It's a tough environment at the moment. In Europe, we're not going to see any significant growth until the first quarter of 2001, but the signs are showing that it's picking up," he said.

Apple's first-quarter results are due to be published on 17 January.