Apple's Third Quarter Hi Lites: We plan to introduce many new products in the coming months

Fred Anderson, Appleis chief financial officer announced in todayis conference call that Circuit City will begin to carry the iMac, iBook and AirPort product lines at their 570 stores nationwide. Apple is working closely with Circuit City to create "an attractive buying experience" for the consumer.

He also noted that, "itis been about 9 months since the last product announcement, but we will that change tomorrow." Mr. Anderson said that such long delays between new product announcements wonit reoccur in the next year. "We plan to introduce many new products in the coming months."

Appleis net profit was $200 million or $0.55 per diluted share for the fiscal 2000 third quarter, which ended June 30th, as compared to a net profit of $203 million or $0.60 per diluted share a year ago. However, excluding a one time gain from the sale of some ARM Holdings plc shares, the EPS was a more modest $0.45, but still a penny ahead of expectations. Appleis stock sold-off about 3 dollars immediately on the news in relatively high volume after hours trading.

Appleis revenues for the quarter were $1.825 billion, up 17% from the year-ago quarter, while gross margins surged to 29.8%, up from 27.4% a year ago. International sales accounted for 46% of the quarter’s revenues, down from fiscal 2000 first quarteris 51% of total.

Year to date, unit sales growth climbed 28% while year over year earnings growth soared a whopping 43% and revenue is up 27%. Cash flow for the quarter was $234 million.

Revenue growth, year over year, climbed 19% for the consumer products and 16% for Appleis professional lines.

Apple sold 351,000 Power Mac G4 systems, 450,000 iMacs and 215,000 portables (iBooks and PowerBooks) to yield a unit growth of 12%.

Year to year, Appleis global sales climbed by regions: Europe rose 20%, Japan higher by 13%, the US up 16% and Asia/Pacific sales climbed by 23%.

Education unit sales were higher by 14% year over year and the most popular computer with schools was the $999 basic iMac.

The tax rate is now 26% and Apple expects it to remain the same going forward.

Operating expenses fell to $375 million in the quarter largely due to the weak Euro and Mr. Anderson said he expects operating expenses to rise by about $15 million in the current quarter.

Apple has $3.8 billion in short term investments. Mr. Anderson indicated that this money is available for strategic acquisitions or investments whenever opportunities arise. Apple made 15 million dollars in strategic investments during this quarter.

The company repurchased slightly over 1 million shares of AAPL at an average price of $48.47 per share during the quarter. $334 million remains in the stock repurchase plan

Apple sold 5 million shares of ARM Holdings plc (ARMHY) for a $37 miilion gain adding $0.10 to the diluted earnings per share, thus the $0.55 earnings per share figure. Apple still owns 41.9 million shares of ARMHY.

Apple maintains less than a day of inventory, with 48 days in sales outstanding.

Gross margins of 29.8% were higher for three reasons according to Mr. Anderson. First, Apple had a stronger professional product mix in the unit sales, secondly component prices were declining during the quarter and finally more sales past through the Apple store. Mr. Anderson expects higher component prices to moderate gross margins by 2 to 3% next quarter.

Appleis online store experienced a 25% surge in sales over last quarter and Mr. Anderson said the company is working hard to push that number higher by adding to the 150 third party products that the store already carries. However, well over 50% of the Appleis stores sales are domestic, while the European and Japanese Apple stores are still in their early stage of growth.

Average price per system sold fell during the quarter from $1,820 to $1,749 due to the weak Euro and a higher product mix of iBooks and iMacs in education sales.

Mr. Anderson reconfirmed that Mac OSX is on schedule for a late summer beta release with the first public release in January of 2001.

Appleis profits from its alliance with Earthlink is tracking at $45 million in incremental gross profits for 2000, well ahead of the $25-$35 million in profits previously forecast.

Mr. Anderson did not want to comment on revenue growth targets for the fourth quarter saying only that it would be above 10% or in "the double digits." He did comment that the company is targeting an earnings per share growth rate of 15% in 2001 with revenue growth at 20%.

The Apple employee head count increased to 10,902 from 10,624 during the quarter.

After Steve Jobis Keynote Address at MACWORLD tomorrow Apple is conducting yet another analyst meeting to cover "beyond the box" strategies and the new products announced. Thatis an indication that more than just a new mouse and keyboard is forth coming. Look for the Mac Observer full coverage.

See Appleis earnings announcement press release.

Mac Observer Spin: Comparing this quarter to the year ago period is a bit tricky since last year Apple had huge investment gains. But if you exclude those gains Appleis EPS increased by $0.10, a steady and sustainable rate of growth. Expect tomorrowis keynote to yield some surprises!