Apple Computer stuns Wall Street with $700m loss
Thursday 28 March 1996
The announcement can only cast further doubt over the long-term viability of the once-mighty company as an independent force in the personal computer industry that it helped to pioneer. It came one day after Moody's Investors Service in New York downgraded its debt to junk-bond status.
The dismal performance guarantees that this quarter, which ends on 29 March, will be the worst in Apple's history. The losses far outstrip the $188m of red ink that was revealed in one quarter in the middle of 1993.
The company emphasised yesterday, however, that the losses would be attributable in a large part to a write-down in the value of unsold inventory and to costs associated with restructuring. The company began a process of laying off 1,300 of its 14,500 employees at the start of this year.
Apple conceded, however, that both its shipping volumes and its revenues for the quarter would be significantly down on the same quarter last year, when the company earned $73m on sales of $2.65bn. The slowdown has burdened Apple with a huge backlog of unsold computers and accessories that it has been unable to sell.
Although Apple had been signalling to Wall Street that a large loss was likely this quarter, few analysts had been expecting anything so dramatic. "It's a shocker in one sense because I don't think anyone realised how big the inventory write-off would be," remarked Tim Bajarin, president of Creative Strategies Research International in San Jose, California.
Gilbert Amelio, who took over as Apple's chairman two months ago, tried to put an optimistic veneer on the news, insisting that he remained convinced that the company's fortunes could be turned around. He promised to unveil a detailed rescue plan in May.
"I'm confident at this point that I know what the problems are and that they are fixable," Mr Amelio said from Apple's headquarters in Cupertino, California. "We plan to aggressively address these issues and take the necessary corrective actions. We will be able to articulate our plans by early May."
Much of the personal computer industry in the US has been issuing warnings of tumbling earnings as demand for home computers has begun to slide. Some manufucturers, notably Compaq, have introduced across-the-board price cuts, which can only compound the squeeze on Apple. Apple has been doubly hurt, meanwhile, because of falling consumer confidence in the company and its future. Fears about its viability were fed by rumours at the start of this year that it was contemplating a merger with Sun Microsystems as its only escape route from disaster.
Shortly after taking the reins at Apple, Mr Amelio put an end to tentative takeover talks with Sun Microsystems and indicated his own preference for maintaining Apple's independence. Apple began to hit the headlines with its difficulties early this year, when it revealed a $69m loss for the last three months of 1995. Once the whizz-kid of the industry, Apple has found itself increasingly sidelined by the dominant standards of the Microsoft Windows operating system and the chip technology of Intel. The ensuing turmoil led to the replacement of its then chief executive, Michael Spindler, with Mr Amelio.
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