iMac gives Apple healthier outlook as profits hit £70m

It has been some time since the words profit and Apple have been bedfellows. Usually the companion word to Apple is beleagured, so much so that the Californian computer maker has repeatedly complained to journalists about their vocabulary of doom.

So naturally, Wednesday was a day of celebration for Apple, which posted its first yearly profit since 1995, and earnings which far exceeded analysts' estimates, based largely on the phenomenal success of its translucent blue entry-level computer, iMac, which sells in the US for $1,299. In an unusual press briefing called while Wall Street trading was still in session, Apple co-founder and interim chief executive officer Mr Steve Jobs touted profits of $106 million (£69.7 million), and earnings of 68 cents per diluted share. Analysts has pegged earnings at 48 cents.

"This is a world-class performance that took lots of hard work," said Mr Jobs. "We've regained our operational excellence."

The last time Apple announced a yearly profit was in 1995, when it made $400 million on sales of $11 billion. In the following two years, it lost $1.8 billion. However, the past three quarters of this year were profitable. Overall earnings were buoyed by sales of the iMac, Apple's first consumer machine in nearly a year. Released in mid-August, the iMac quickly sold out at some dealers and is expected to be Apple's fastest-selling computer; 278,000 were sold in the first six weeks, said Mr Jobs.

He noted that although revenue declined from $1.61 billion a year ago to $1.56 billion, the more crucial unit sales were up 28 per cent. Inventory has been whittled down to a six-day backlog, slimmer than Dell's eight-day inventory, said Mr Jobs. At points last year, Apple had $400 million in inventory; that figure is now a healthier $78 million.

While the company may have had, in Apple terms, a bumper year, most analysts agree that it is still far too early to make a good recovery prognosis. Probably reflecting these concerns, Apple shares closed slightly lower on Wednesday after an initial climb.

After all, the past decade has been mostly a tale of woe for the manufacturer.

First, there have been management problems, originating at the top. A succession of chief executives each arrived to great fanfare and then eventually exited amid a hail of criticism. To the "Mac Faithful", the die-hard Mac fans who have helped maintain Apple's reputation as having some of the strongest brand loyalty in the consumer world, each CEO seemed to fiddle while Apple burned.

Until the early 1990s Apple was one of the four largest computer manufacturers is widely credited with creating the home computer market by making the first user-friendly computer. Apple introduced the Macintosh in 1984 with the windows and icons format common to home PCs today and upon which Microsoft Windows is based. But the cheaper Windows operating system and Intel microchip-based hardware (the so-called "Wintel" platform) ate into Apple's market share. From the late 1980s, Apple's slice of the market slowly headed south, from a high of more than 10 per cent to a recent low of 3.5 per cent (which has begun to climb modestly, to 4 per cent).

Apple's turnaround has followed closely on the return of its co-founder, Mr Jobs, who left the company in a management upheaval in the mid-1980s. Until the end of 1996, he concentrated on his dual roles as CEO of computer software company NeXT and computer animation studio Pixar (makers of Toy Story). NeXT was sold to Apple in a move that brought Mr Jobs, until then, a bitter critic of Apple, back into the fold.

Pixar is now part-owned by Disney, allowing Mr Jobs to concentrate on his role as interim Apple CEO a job he took after ousting former Apple CEO Mr Gil Amelio a little more than a year ago.

Reportedly, Mr Jobs is under pressure from his board of directors and Apple management to take the position permanently. The media, meanwhile, has postulated that few outside executives are willing to take on the CEO job at what until now has been an ailing company, and work alongside the notoriously mercurial Mr Jobs, who would presumably reign as chairman of the board.

Perhaps now the post will appear more attractive. While Apple must now show it is not just cutting costs but actually rebuilding market share, at least it has accomplished with some style a turnaround few thought possible a year ago.

On the other hand, profitability was achieved under Mr Jobs meaning there will be much pressure now for him to stay. Always known for high corporate drama, Apple should make for interesting viewing over the next year.