Apple issued a profit warning yesterday – saying it will return its first financial loss in three years for the first fiscal quarter, 2001.

Due to slower-than-expected sales in October and November, Apple predicts both its first-quarter earnings and revenue will be well below its initial expectations, senior company executives said. The first quarter is due to close December 30, 2000 with the final results to be announced January 17, 2001.

Apple expects to return a net loss, excluding investment gains, of between $225 million and $250 million, on revenue of around $1 billion. This latest revenue estimate is $600 million short of the revenues Apple forecast on October 18 on the release of its fourth-quarter results. Apple said the revenue shortfall is related to lower than expected channel sales worldwide, while the net loss is related to cancellation charges for components.

Major problems "Apple was simply not prepared to be hit by three major problems at the same time," Apple CEO Steve Jobs said. One of the problems relates to a variety of internal issues at Apple, while the other two were a slowdown in demand for PCs and overall weakness in the worldwide economy, he said.

Jobs said the loss-making quarter will be Apple's first in the red since he returned to the company three years ago. "It's not something I'm proud of," he added.

Slowing personal computer sales worldwide is likely to be "more than a one quarter phenomenon", chief financial officer Fred Anderson said, adding that Apple has already scaled back its revenue predictions for the year. For fiscal 2001 Apple now expects revenue to be between $6 billion and $6.5 billion, down from the $7.5 billion to $8 billion, the company estimated back in October, Anderson said.

Spike In the second half of November, Apple didn't see the "huge spike" in consumer demand for its products which it historically experiences as the US-holiday buying season ramps up, Anderson said.

Anderson and Jobs stressed that Apple intends to return to "sustained profitability" in the second quarter of fiscal 2001. Jobs also emphasized Apple's financial health, saying the company has an "Arnold Schwarzenegger balance sheet" with more than $4 billion in investments on hand. "There's no question that Apple can survive this quarter," he said.

Apple is in the middle of trying to bring its inventory levels back to normal, a goal it hopes to achieve by the end of December, Anderson said. Channel inventory levels had been running as high as 11 weeks, with six weeks worth of inventory being the industry norm, he added.

Clean slate "We want to enter 2001 clean," Jobs said, unlike rival vendors who are likely to be "burdened by long inventories of aging products".

Apple has lost its top spot in the US education computer market - long one of its strongholds - to Dell. Jobs said the loss was all Apple's fault and stemmed from the company "shooting itself in the foot" when it carried out a sales force reorganization earlier this year. With some new executives on board, Apple hopes to recover its number one position, Jobs added.

He also castigated his company for "completely missing the boat" on bundling CD-RW drives with its computers, as rivals like Hewlett-Packard have done. Jobs promised to fix that omission.

Delaying Jobs said he believes some customers are delaying buying Apple's computers until the release of the next major version of the company's operating system, Mac OS X. The software is "on track" to ship early next year, he added. The public beta of the operating system has already sold around 100,000 copies, according to Jobs.

In September Apple warned that weak sales during that month would adversely affect its fiscal 2000 fourth-quarter earnings, reported October 18. At that time, Anderson said Apple expected only a "slight profit" in the first quarter of fiscal 2001.

The company's shares closed at $17, a rise of 1.9 per cent, but the warning was issued after the market closed.