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BREAKFAST WITH THE FOOL

Tuesday, September 21, 1999

"Now I'm in real trouble. First my laundry called and said they lost my shirt and then my broker called and said the same thing."
-- Leopold Fechtner

Apple Skips a Beat

By Richard McCaffery (TMF Gibson)

With the lift shares of Apple Computer (Nasdaq: AAPL) have gotten this summer there's no way they wouldn't fall when the Cupertino, California company warned Q4 revenue and earnings wouldn't meet expectations because of problems getting processor chips from supplier Motorola (NYSE: MOT).

Apple's stock, which has more than doubled from around $30 in May to $76 15/16 yesterday, dropped $10 1/2 in European pretrading on news of the shortfall.

Here's how it will look for Apple this quarter. The company that introduced the world to the personal computer in the 1970s expects earnings in the range of $0.52 and $0.59 per share on net income from $75 million to $85 million, based on the company's latest share count. This is at least 22% short of expectations. Analysts surveyed by First Call expected earnings of $0.76 per share. Apple will formally announce its quarterly and year-end earnings October 13.

Apple was brief in its statement, but laid the blame squarely on Motorola, the manufacturer of G4 processor chips that power the company's latest product, the lightning-fast Power Mac G4. "We are very disappointed that this quarter's deliveries of G4 processors will be lower than planned," said Fred Anderson, Apple's chief financial officer.

Steve Jobs, Apple's (interim) chief executive and the man behind the company's resurrection, said Apple has received orders for 150,000 Mac G4s since the product was released three weeks ago, but the company will not be able to ship them all this quarter because of the processor shortage. He said backlog remains strong and he expects to catch up in the next fiscal period.

For its part, Motorola acknowledged the shortfall but seemed to take offense at the idea it had stumbled. "Motorola views this as a great endorsement for its G4 processor," the company said in a statement. "There are no surprises here. Motorola has advised Apple of the G4 schedule status every day. The only time a company does not encounter these kinds of challenges during a product launch is when it produces a chip nobody wants to buy."

The Motorola - Apple relationship sounds a little cool at the moment, and investors should pay attention to further developments. Nevertheless, supplier - manufacturer difficulties aren't uncommon in the computer industry and in a quarter or two the matter will likely be resolved and forgotten. For the long-term investor, it probably represents little more than noise on the Street.

News to Go

Network equipment maker Cabletron (NYSE: CS) topped fiscal second quarter estimates as sales for its SmartSwitch router soared 200%. The company reported pro forma net income of $0.07 per diluted share, up from $0.06 a year ago.

Home furnishings dealer Bed Bath and Beyond (Nasdaq: BBBY) will replace BankBoston (NYSE: BKB) on the S&P 500 after the close of trading today following Fleet Financial's (NYSE: FLT) acquisition of BankBoston.

Struggling enterprise software maker PeopleSoft (Nasdaq: PSFT) announced that Craig Conway, PeopleSoft president and chief operating officer, has accepted the position of chief executive officer. Founder David Duffield is stepping down from the CEO slot but will remain chairman of the board.

Database software maker Oracle (Nasdaq: ORCL) and computer giant Hewlett-Packard (NYSE: HWP) are expected to announce a partnership to jointly develop customer relationship management (CRM) products, CNET News.com reported. CRM is one of the fastest-growing segments of the software market.

More Foolishness

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