Call it a sign that spring is in full bloom. Blossoms are returning to the flowers. Leaves are returning to once-barren trees. Birds are returning from their winter flight down South.
And Apple has returned to profitability after a winter of bleak projections and sluggish sales.
Apple turned a net profit of $43 million for the second quarter ending March 31 — a drop from year-ago earnings but significantly better than the $195 million first-quarter loss the company reported. Even better, Apple’s 12-cents-a-share profit handily beat the projections of Wall Street analysts, who expected earnings of 1 cent a share for the quarter. And at a time when others are still struggling with a slumping market — hello, Hewlett-Packard — Apple can claim, with some confidence, that it’s among the companies weathering the economic storm.
“We had a lot to accomplish in the March quarter, and we’re very pleased our results exceeded expectations in a very difficult market,” Apple CFO Fred Anderson told reporters and analysts Wednesday.
So that means the good times are back, doesn’t it? After a first-quarter aberration, Apple is riding high again and Steve Jobs is once more bestriding the tech world like a black turtleneck-wearing colossus, right?
Not exactly. Wednesday’s earnings, while an encouraging development for the Mac market, don’t mean an end to the challenges facing Apple. Indeed, between its nascent next-generation operating system and a myriad of woes bedeviling all PC makers, Apple has plenty of juggling to do just to stay in the black for the rest of 2001. Anderson expressed confidence Wednesday that Apple would be able to pull it off. But anyone who argues that it’s clear sailing from here on out for the company is being as foolish as the doom-and-gloomers who were ready to bury Apple in a translucent, Bondi blue-colored casket last December.
Still, Apple has plenty to be happy about. And the new products introduced by the company since January’s Macworld Expo deserve much of the credit for the second-quarter turnaround.
Take the Titanium PowerBook G4, which has been “a huge success for Apple,” Anderson said. The company has sold 115,000 units so far, besting its PowerBook sales from even last year’s flush second -quarter. PowerBook production is ramping up to meet the demand for the sleek, silvery laptop.
Sales of Power Mac G4s also were strong in the second quarter, thanks to faster processors and new CD-RW drives. Apple sold 250,000 G4s in the second quarter, down 29 percent from a year ago, but up from the 173,000 units the company sold during the first quarter of its 2001 fiscal year. “Apple is way out in front of our competitors with the SuperDrive and iDVD software,” Anderson said.
Apple also benefited from the debut of a new operating system that you may have read about. OS X shipped on March 24, just a week before the second quarter ended. Apple still reported $19 million in revenue from the new OS, “which has received favorable market reaction,” Anderson said — about as close as a CFO will come to shouting, “Yippee!”
One of Apple’s biggest product achievements for the quarter probably went unnoticed by most customers. It reduced channel inventory, or the number of machines that have been manufactured but not sold, to its target goal of four weeks, down from a staggering 11-week backlog at the end of its 2000 fiscal year. And Apple met its target ahead of schedule.
“We feel very good about this quarter’s results and our ability to generate products while reducing inventory in a very turbulent macroeconomic environment,” Anderson said.
So, is a repeat performance in the cards? All Apple has to do is come out with a stylish laptop that appeals to even the most hardened Luddite, a couple of slick applications that refine the role a desktop computer plays, and a revolutionary operating system. And really, is it unreasonable to expect Apple to pull that off every couple of months until the economy snaps out of its funk?
Even Apple is pretty cautious about the coming months. Anderson told analysts that the company is projecting in the neighborhood of $3.2 to $3.4 billion in revenue for the second half of 2001. Add that to Apple’s first-half sales, and that comes out to a projected 2001 revenue of $5.8 billion — down slightly from the $6 billion estimate Apple bandied about during the first quarter. And no matter what projection you pick, that’s still a major drop-off from the nearly $8 billion in revenue that Apple took in for 2000.
Apple controls some of its own destiny. It’s perfectly capable of keeping its inventory backlog in check, developing enough new hardware and software to keep the product line fresh, and releasing timely updates to OS X to ensure that the new OS runs smoothly enough to entice more Mac users to make the switch.
But a significant chunk of Apple’s fate will be determined outside the friendly confines of the Cupertino campus. Take OS X — widespread adoption of the new OS depends on whether third-party developers release OS X-native versions of their applications. If the expected summertime surge of OS X-ready products doesn’t happen, sales of the OS could stall. Then there’s the not-insignificant matter of the economy. Should a lengthy recession materialize, consumer spending will tighten further. And that’s not a recipe for sizzling hardware sales.
Still, Apple doesn’t have to start clipping coupons just yet. It has a little more than $4.1 billion in cash and short-term investments on its balance sheet, enough to get it through a rainy day or two. And Titanium PowerBooks and 733MHz G4s aside, Apple isn’t resting on its product laurels.
The company offered no hints about future products Wednesday. But it suggested that the product pipeline would play as key a role in Apple’s ongoing fiscal health as it did in the company’s recovery. “As Steve [Jobs] said in the [earnings] release, there’s more on the way,” Anderson said.
There will have to be, if Apple doesn’t want to see the bloom of spring fade away by fall.