Apple’s Shares Plunge on News of Discouraging Holiday Revenue

SAN FRANCISCO —  Apple Computer Inc.’s shares plummeted in heavy trading Monday following the company’s announcement late Friday that holiday sales were dismal, and analysts said it is imperative that the company present a detailed view of its new technology strategy at the Macworld show this week.

Apple shares plunged $2.875 to close at $17.875 in heavy trading on the Nasdaq, leaving the stock price close to its 52-week low of $16 per share. The company had announced after the markets closed Friday that it would lose between $100 million and $150 million in its fiscal first quarter, mainly because of slumping consumer PC sales.

News of the loss came at an especially awkward time for Apple as the company confronts the most important product transition in its 20-year history.

Two weeks ago, Apple acquired Next Software Inc., the company started by co-founder Steven Jobs, and plans to use the Next software as the foundation for a radically new version of the Macintosh.

It will be at least a year before the Next-based operating software is ready, and it will be another year after that before Macintosh applications such as word processors, databases and spreadsheets will be able to run on new Next-based machines.

While working on a Next-based version of the operating system, code-named Rhapsody, Apple will continue to make improvements to its existing Macintosh software. A version boasting a three-dimensional user interface will be demonstrated by Apple Chairman and Chief Executive Gilbert Amelio during his keynote speech at the Macworld show opening here today.

For a time, Apple intends to develop and ship both operating systems in tandem, sources said. Rhapsody will be released to third-party software developers sometime in the third quarter of this year.

A software window will eventually enable Next-based Macintoshes to run many older applications as well as software written for new versions of the original Macintosh operating system, and eventually the two will be merged.

Even if all goes smoothly with the project, the company faces a fearsome challenge in preventing further loss of its already shrinking market share.

“It’s going to be a tough year, no doubt about it,” said Gordon Eubanks, chief executive of longtime Macintosh software developer Symantec Corp.

Even so, Eubanks, like other staunch Apple allies, attempted to put the most positive spin on the disheartening news.

“It’s easy to overreact to short-term problems,” he said. “While it’s unfortunate that the quarters have been up and down, the real determining factor for Apple is their ability to come up with unique software and then to bridge people from where they are with today’s technology to the future technology.”

Investors were less sanguine. The loss projected for the three months ended Dec. 27 is much worse than the few million dollars expected by stock analysts.

Apple’s revenue is expected to sag to about $2.07 billion, 34% lower than the corresponding quarter last year and 10% less than the preceding three-month period.

The grim projection quickly extinguished any ideas that Apple is on the road to financial stability following an unexpected profit for the previous quarter.

Amelio, who was hired early last year to turn the company around and has already slashed costs and staff significantly, indicated that more layoffs might be necessary.

Apple had wanted the Macworld show to be a celebration of the return of its charismatic co-founder Jobs, now a consultant to the company. Jobs and his onetime partner Steve Wozniak are scheduled to join Amelio onstage during his keynote speech.

But it is not clear whether Jobs will have any other role at the show, and questions remain as to whether he intends to put much energy into the Apple turnaround effort.

For the moment, Apple is clearly losing favor among important constituencies. Demand for the Performa, a line of Macintosh PCs designed for home computer users, is down sharply as customers nervous about the company’s future turn to PCs running Microsoft’s Windows software. Sales of Performas account for between 15% and 20% of Apple’s revenue.

The company has indicated that it plans to concentrate more on “servers,” the machines that orchestrate computer work groups.