Apple Q4 '96
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Apple Q4 '96
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(FOOL CONFERENCE CALL SYNOPSIS)* By Debora Tidwell (MF Debit)
Apple Computer, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AAPL)") else Response.Write("(NASDAQ: AAPL)") end if %> UNION CITY, Ca., October 17, 1996/FOOLWIRE/ --- Apple Computer announced results for its fourth fiscal quarter. Revenues were $2.321 billion, a decrease of $682 million from the fourth quarter a year ago, but a sequential increase of $142 million from the third quarter. Unit shipments for the quarter were approximately 932,000, a decline of 26% from the year ago quarter but a sequential increase of 11% from the June 1996 quarter. International revenues represented 47% of the quarterly total.
Net income for the quarter was $25 million, or $.20 per share, compared with $60 million, or $.48 a share, in the same quarter a year ago. Operating income for the quarter was $34 million, a sequential improvement of $150 million from its $116 million operating loss in the June 1996 quarter. Included in the fourth quarter's operating results was an adjustment of prior period restructuring charges which reduced pre-tax operating expenses by $28 million. Without this adjustment, net earnings would have been approximately $8 million, or $.06 per share.
Apple experienced continued sequential growth in gross margins and reductions in operating expenses. Gross margins were 22%, compared to 18.5% in the June quarter, while operating expenses before the restructuring adjustment declined to $505 million from $519 million in the ustainable profitability.
SALES. Revenues were up 7% from the third quarter and unit shipments were up 11% from the third quarter. They were very pleased that sales in the US K-12 educational market were higher this quarter than any other quarter in the company's history. US sales to business customers were also up notably from last quarter. They experienced a number of large enterprise sales wins within the last quarter including Los Alamos National Labs, Jet Propulsion Laboratory, Southwestern Bell Telephone, Art Institutes International, and the State of Texas.
They think it is important to note that Apple is committed to the enterprise market and is continuing to work with software and hardware vendors to ensure the availability of first class enterprise solutions. For example, during the quarter they announced an alliance with Sun Microsystems through which they will work to enhance the interoperability of Mac clients with Sun Solaris servers, to enhance the interoperability of Java Beans with OpenDoc and to better integrate QuickTime with Sun's multimedia technologies.
Their split between US and international revenues was 53% and 47% respectively. Total backlog at quarter end decreased slightly to $378 million from $428 million last quarter. The growth they experienced sequentially from Q3 to Q4 was predominantly in the US. They had a strong Q4 in the US. Regarding Japan and Europe, they were down very slightly from the prior quarter. That is fairly normal and is nothing to be concerned about.
GROSS MARGIN. Their margins improved to 22% from 18.5% in the third quarter and were also higher than the 20.7% in the fourth quarter last year. Margin improvements were due primarily to lower component costs, manufacturing efficiencies, and the sales of fully reserved product. They feel good about these margins and believe they are making excellent progress toward sustainable gross margins in excess of 20%.
OPERATING EXPENSES. They achieved an additional sequential operating expense decrease of $14 million during the quarter before restructuring adjustments. This represents a $50 million decrease from the second quarter this year when they started their restructuring program. This means that on a run rate basis, they are approximately 90% of the way toward their goal of reducing annual operating expenses from the second quarter run rate of $2.2 billion to $2 billion, which is really their goal for fiscal 1997.
Spending decreases this quarter came primarily from general and administrative areas. R&D spending was also down slightly, offset by higher sales and marketing expenses on the increased sales volume. Adjustments of previously booked restructuring reserves contributed $28 million to the overall operating profit.
LIQUIDITY. They continued to make significant progress in their cash position. They exited the quarter with over $1.7 billion in cash and short term investments which is $610 million more than their outstanding debt. They reduced net inventories by just under $400 million. On a cumulative basis, since the end of the second quarter, they have now reduced their net inventories by about $800 million. They were able to maintain days sales outstanding at 51 days compared to 50 days at the end of the third quarter. Capital expenditures remained under excellent control for the quarter and were $12 million, bring their total-year capital spending to about $67 million. Depreciation for the quarter was $46 million or $156 million for the year in total. Finally, they generated $410 million in positive cash flow from operations, which were obviously primarily due to the inventory reduction.
AN UPDATE ON RESTRUCTURING ACTIVITIES. They reviewed the status of restructuring activities and deemed it appropriate to reduce their previously booked restructuring reserves by $28 million. This adjustment is largely due to higher than expected attrition rates. They will continue to monitor the situation but they believe the reserve, as now adjusted, is appropriate given their future direction. While they originally planned layoffs of about 2800 people, they revised that estimate to approximately 1500 people. About 900 people have been laid off since January. Headcount reduction rates have decelerated, however, and total headcount is now 13,398 which is down slightly from the 13,729 at the end of the third quarter. However, that number represents a reduction of over 4000 employees from the 17,615 level at the company at the end of fiscal 1995.
During the quarter they closed their Napa Data Center outsourcing transaction which generated approximately $24 million in cash.
A BRIEF OUTLOOK FOR FY 1997. They still expect to reach sustainable profitability by the second fiscal quarter of 1997 and to achieve a profitable fiscal 1997. They expect sales volumes in the first quarter to be roughly comparable to the fourth quarter volumes despite anticipated lower Powerbook sales due to the start of a new planned product transition over the next two quarters. First quarter mix will shift towards consumer oriented products and Powerbooks will be in a ramp-up mode during the quarter. Beginning in the second quarter, they expect to begin to experience some modest year-over-year sales growth. They feel good about their ability to sustain gross margins at or above the 20% level and they expect to hold operating expenses around $500 million per quarter during fiscal 1997.
They are introducing some new products. They already introduced new speed-bumped products and a new Performa 6400 and there will be some new announcements coming out in Q1 1997 that should have higher margins than the old products they replace. They feel comfortable that their gross margins should hold at or above 20%.
They had a much stronger mix of entry level and Powerbook business in the fourth quarter compared to the third fiscal quarter; and they had a much stronger high-end PowerMac. That was one of the reasons for the margin improvement in Q3, the strong mix of Power Macintosh models. In Q4 was the strong education season which really drove a strong entry-level type product mix. Powerbook sales represented about 15% of their unit volume in sales. They are now in a ramp up. They anticipate Powerbooks being about $150 million less in revenues next quarter than this quarter. They are anticipating strong consumer product sales to offset that and to have a comparable quarter in terms of revenues.
They think they are making good progress to fulfill the goal of reducing the number of models by 50% by the time of the next Developer's Conference. But, they haven't really got a lot of benefit from that in Q4; that is really to come over the next 3 quarters. They look for a significant benefit in terms of reduced product costs when they begin coming out in the second half of fiscal 1997 with the CHRP-compliant products.
As far as channel inventories, there isn't a lot of change from Q3 other than in the domestic consumer channel in anticipation of the big holiday buying season. Compared to last year, they are down significantly on their channel inventories. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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Copyright 1996, The Motley Fool |