STOCKREPORTS
Apple Computer, Inc. Nasdaq Symbol AAPL
In S&P 500
19-JUL-97 Industry:
Computers (Hardware)
Summary: Apple is a leading maker of personal computers and related products. The company has transitioned to a new line of personal computer products powered by the PowerPC microprocessor.

Recent Price 17.34
52 Wk Range 26.56 - 13.69
Yield Nil
12-Mo. P/E NM

Quantitative Evaluation:
Outlook (1 Lowest - 5 Highest)
1-
Fair Value
10.30
Risk
MEDIUM
Earn/Div Rank
B
Technical Evaluation:
BULLISH since 10/95
Rel. Strength Rank (1 Lowest - 99 Highest)
68
Insider Activity
NA

Overview 05-MAY-97

Revenues are forecast to decline 15%-20% in FY 97 (Sep.), reflecting Apple's loss of market share in an increasingly Windows-dominated world. Second-half revenues should grow sequentially from depressed first half results, helped by the seasonal back-to-school purchases. While new product offerings could enable it to stem further erosion of sales to its traditional strongholds, education and publishing, Apple's longer-term growth will depend upon the success of its new operating system scheduled for general release in mid-1998. In the near term cost cutting efforts and a higher margin product mix should continue to benefit gross margins in the second half. Restructuring initiatives, including recently announced workforce reductions, and R&D cuts are intended to ultimately lower annual operating expense by $500 million, and initial benefits could begin to show in the second half. Apple hopes to return to profitability in the fourth quarter.

Valuation 05-MAY-97

The shares have retreated considerably over the past year, and since the beginning of January, have remained mostly in a trading range (except for episodes spurred by takeover speculation). Apple has accumulated net losses of more than $1.6 billion over the past 18 months. Apple faces considerable hurdles in redefining its organization to operate profitably at a lower sales base and in stemming customer defections to Windows platforms. While new products appear promising, with Apple's loss of market (and mind) share, its outlook for revenue growth is lackluster, if not bleak. The demands this lower revenue base puts on Apple to reduce costs in order to break even present significant financial risk, although buffered by a $374 million net cash position. We recommend that investors avoid the shares.

Key Stock Statistics

S&P EPS Est. 1997 -2.88
P/E on S&P Est. 1997 NM
S&P EPS Est. 1998 0.80
Dividend Rate/Share Nil
Shs. outstg. (M) 126.4
Avg. daily vol. (M) 2.722
Tang. Bk. Value/Share 9.82
Beta 0.40
Shareholders 32,400
Market cap. (B) $ 2.2
Inst. holdings 36%
Value of $10,000 invested 5 years ago:$ 2,836

Fiscal Year Ending Sep. 30

Revenue (Million $)
1997 1996 1995 1994 1993 1992
Q1 2,129 3,148 2,832 2,487 2,000 1,863
Q2 1,601 2,185 2,652 2,077 1,974 1,716
Q3 1,737 2,179 2,575 2,150 1,862 1,740
Q4 NA 2,321 3,003 2,493 2,141 1,768
Year NA 9,833 11,062 9,189 7,977 7,087

Earning Per Share ($)
1997 1996 1995 1994 1993 1992
Q1 -0.96 -0.56 1.55 0.34 1.33 1.36
Q2 -5.64 -5.99 0.59 0.15 0.92 1.09
Q3 -0.44 -0.26 0.84 1.16 -1.63 1.07
Q4 E-0.05 0.20 0.48 0.95 0.02 0.81
Year E-2.88 -6.59 3.45 2.61 0.73 4.33

Dividend Data: Cash payments began in 1987 and were omitted in February 1996.

Business Summary 05-MAY-97

Apple Computer Inc.'s market share in worldwide personal computer markets has been cut nearly in half over the past three years, falling to 5.2% in 1996, from 9.4% in 1993. The decline has been linked to the strides made in the Windows platform to narrow Apple's edge, noted for their ease of use, innovative applications and better stability. Apple Macintosh personal computers were first introduced in 1984.

Under a restructuring program that was introduced in 1996 and enhanced in March 1997, Apple has outlined a new business model to fix what is wrong with the company, and restore sustained profitability. Apple is trimming its people and operating cost structure to reflect the fact that it no longer ships one million PCs a quarter (it's now around 800,000), and it has refreshed its product line to match the competition in price/performance metrics. Apple also sold its Fountain, CO, manufacturing facility to SCI Systems, Inc.

Apple's hardware strategy is to simplify its product line, focus on key customers and use more standard components. The Power Macintosh family is the most advanced line, intended for businesses and academics. As part of the simplification strategy, entry-level Power Macs will supplant the Performa line, targeted at first-time users. The PowerBook portable computer is aimed at the mobile user. All Macs use the PowerPC RISC-based microprocessor developed in an alliance of Apple, IBM and Motorola. In 1996, the alliance agreed on a common platform for the PowerPC, so that Apple can offer products that can run Windows, either by the presence of an Intel microprocessor or the ability to accommodate an add on card.

Apple is also addressing the proprietary nature of its operating system software, Mac OS. In conjunction with updates to its current Mac OS releases, (7.6 shipped early 1997, followed by 8.0 in the summer), Apple is developing a next generation operating system, Rhapsody, scheduled for general release in mid-1998. Rhapsody is designed to be more robust, and able to run on multiple platforms, using technology obtained through Apple's February 1997, acquisition of NeXT Software Inc. Steve Jobs, Chairman and CEO of NeXT and co-founder of Apple, serves as part-time consultant under the deal.

Apple has six direct Mac OS licensees, including IBM and Motorola. The program began in 1994, and is intended to grow its installed base via Mac "clones." Apple estimated its licensees' share of the world wide PC market was 0.5% in the first quarter of FY 97 (Sep.).

Apple's other products include servers, the Newton personal digital assistant product, eMate 300 (a new mobile computer for students), and a full line of computer peripherals. Apple's wholly-owned subsidiary, Claris Corp.,develops and markets application software.

About half of AAPL's sales are outside the U.S.

Capitalization

Long Term Debt: $952,000,000 (03/28/97).

Per Share Data ($)
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Tangible Bk. Val. 16.53 23.60 19.94 17.45 18.46 14.92 12.54 11.77 8.17 6.63
Cash Flow -5.33 4.48 4.03 2.12 6.10 4.28 5.39 4.50 3.68 2.19
Earnings -6.59 3.45 2.61 0.73 4.33 2.58 3.77 3.53 3.08 1.65
Dividends 0.12 0.48 0.48 0.48 0.48 0.48 0.44 0.40 0.32 0.12
Payout Ratio NM 14% 18% 64% 11% 19% 12% 11% 10% 7%
Prices - High 35 1/2 50 1/8 43 3/4 65 1/4 70 73 1/4 47 3/4 50 3/8 47 3/4 59 3/4
- Low 16 31 5/8 24 5/8 22 41 1/2 40 1/4 24 1/4 32 1/2 35 1/2 20 1/8
P/E Ratio - High NM 15 17 89 16 28 13 14 16 36
- Low NM 9 9 30 10 16 6 9 12 12

Income Statement Analysis (Million $)
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Revs. 9,833 11,062 9,189 7,977 7,087 6,309 5,558 5,284 4,071 2,661
Oper. Inc. -1,047 788 563 597 1,023 876 949 759 698 442
Depr. 156 127 168 166 217 204 203 125 78.0 71.0
Int. Exp. 60.0 48.0 39.7 Nil Nil Nil Nil Nil Nil Nil
Pretax Inc. -1,294 674 500 140 855 500 779 744 656 410
Eff. Tax Rate NM 37% 38% 38% 38% 38% 39% 39% 39% 47%
Net Inc. -815 424 310 87.0 530 310 475 454 400 217

Balance Sheet & Other Fin. Data (Million $)
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Cash 1,745 952 1,258 892 1,436 893 997 809 546 565
Curr. Assets 4,515 5,224 4,476 4,338 3,558 2,864 2,403 2,294 1,783 1,307
Total Assets 5,364 6,231 5,303 5,171 4,224 3,494 2,976 2,744 2,082 1,478
Curr. Liab. 2,003 2,325 1,944 2,515 1,426 1,217 1,027 895 827 479
LT Debt 949 303 304 Nil Nil Nil Nil Nil Nil Nil
Common Eqty. 2,058 2,901 2,383 2,026 2,187 1,767 1,447 1,486 1,003 836
Total Cap. 3,361 3,906 3,358 2,656 2,798 2,277 1,949 1,849 1,255 999
Cap. Exp. 67.0 159 160 213 195 218 224 239 144 86.0
Cash Flow -659 551 478 253 748 514 678 579 478 288

Curr. Ratio 2.3 2.2 2.3 1.7 2.5 2.4 2.3 2.6 2.2 2.7
% LT Debt of Cap. 28.2 7.8 9.1 Nil Nil Nil Nil Nil Nil Nil
% Net Inc.of Revs. NM 3.8 3.4 1.1 7.5 4.9 8.5 8.6 9.8 8.2
% Ret. on Assets NM 7.4 5.8 1.9 13.7 9.5 17.3 18.6 22.7 16.4
% Ret. on Equity NM 16.0 13.9 4.2 26.8 19.1 33.9 36.1 44.0 28.3

Data as orig. reptd.; bef. results of disc. opers. and/or spec. items. Per share data adj. for stk. divs. as of ex-div. date. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked.

Office--20525 Mariani Ave., Cupertino, CA 95014. Tel--(408) 996-1010. Website--http://www.apple.com Chrmn, Pres & CEO--G. F. Amelio. Vice-Chrmn--A. C. Markkula. Investor Contact--Bill Slakey (408-974-3488). Dirs--G. F. Amelio, P. O. Crisp, B. Goldstein, B. J. Hintz, K. M. Hudson, D. E. Lewis, A. C. Markkula, Jr. Transfer Agent & Registrar--First National Bank of Boston. Incorporated--in California in 1977. Empl-- 13,398. S&P Analyst: Megan Graham Hackett


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