Apple Computer Proceeding with Initial Phase of Business Restructuring

Operating Results for First Fiscal Quarter Consistent with Previous Indications

Cupertino, California--January 17, 1996--Apple Computer, Inc. today announced financial results for its first fiscal quarter of 1996, ended December 29, 1995. For the quarter, Apple's net revenues were $3.1 billion, an 11% increase over the first quarter a year ago. Unit shipments for the quarter grew by 12% to 1.3 million. Both net revenues and unit shipments represented Apple's highest quarterly totals ever.

As Apple previously indicated on January 10, the Company's gross margins as a percentage of net sales declined significantly during the quarter, resulting in a net after-tax loss for the quarter of $69 million, or a loss of $0.56 per share. This compares with a net profit of $188 million, or $1.55 per share in the same quarter a year ago.

Consistent with its previous disclosure, Apple also announced a company-wide restructuring of its operations. The initial phase of this restructuring, which has begun, will result in the layoff of approximately 1300 full-time, temporary and contract employees worldwide over the next 12 months, representing a reduction of at least 8% of Apple's total work force. As a result of these specific planned actions, the Company expects to record an associated charge of at least $125 million before taxes in its results for the second fiscal quarter, which ends March 29, 1996. The Company said that additional restructuring actions and additional charges against earnings are possible in the second fiscal quarter and in future quarters, reflecting a continuing implementation of its restructuring process.

"Our results for the first quarter do not reflect the tremendous intrinsic strengths of the Apple franchise, including our brand equity, loyal customer base, undeniable technology leadership, outstanding products, and solid competitive advantages in key markets and growth sectors such as education, consumer, multimedia, publishing and the Internet," said Michael Spindler, Apple's president and chief executive officer. "The task in which Apple management and its Board of Directors is currently engaged is to utilize Apple's strengths in order to position the Company for long-term strength and success.

"The most immediate and obvious work we must undertake is to quickly streamline operations. The workforce reduction is a necessary first step, and will begin primarily in sales, marketing and administration.

"In addition, we have started a systematic evaluation of our strategic investments and business portfolio. To date, this has resulted in a divesting of our investments in Kaleida and Taligent, while retaining access to the technology these firms produce. We have also refocused our online services strategy away from a stand-alone proprietary business to one which uses and integrates with the Internet, which means we don't have to develop a costly infrastructure ourselves.

"Next, we have begun to develop strategies to fundamentally change our business model. In products, we intend to simplify our product portfolio so our offerings focus primarily on innovative, differentiated and best-of-class products in our key market segments in education, business and the home. Our strategy will be to build brand preference around these offerings. In order to assure a full selection of Mac OS-based products in all parts of the market, we will pursue a much broader licensing of the Macintosh operating system.

"In addition, we are pursuing expanded business alliances to further promote and extend our platforms, evolve new businesses that utilize our strengths in multimedia and the Internet, and better manage our assets by leveraging the expertise and capabilities of our business partners.

"Addressing the strategic issues before us and restoring the company to profitability will take time. Based on our current internal forecasts, we expect to report an operating loss for our second fiscal quarter, independent of further restructuring charges.

"Our goal is to ultimately redesign Apple's business so that we can carry out our most important strategic missions. These include ensuring the continued superiority of the Macintosh platform, especially in the areas of multimedia and the Internet; vibrant support from developers; the highest customer satisfaction and brand loyalty; leading positions in markets where Apple competes; and increased shareholder value," said Spindler.

Financial Results

Revenues and unit shipments increased during the quarter as the Company shipped more than one million PowerPC processor-based Macintosh units during the quarter--the highest number of RISC processor-based systems ever in a single quarter.

For the period, international revenue accounted for 51 percent of net sales, compared to 47 percent of net sales in the year-ago period. International revenues grew 19% compared with the first quarter of last year. These results included 26% growth in revenues and almost 50% in units in Japan, and approximately 18% growth in European revenues. The growth in European revenues and profits represented the fastest revenue growth rate in that region in the last few quarters.

Gross margins as a percentage of net revenues dropped to 15.1% of net sales for Q1 1996, a sequential drop of 5.6 percentage points from 20.7% of net sales for Q4 1995 and a 13.6 percentage point decline from 28.7% in the year-ago quarter.

The Company attributed the decline in gross margins to more aggressive pricing across its markets during the competitive holiday selling season, particularly in Japan-the Company's largest market outside of the U.S.
Apple's gross margins were also impacted during the quarter by inventory adjustments of approximately $80 million before taxes to reflect current pricing pressures.

Total research and development and sales, general and administrative expenses for the first quarter were $594 million, or 18.9% of net sales, compared with $547 million or 19.3% of net sales in the same period a year ago.

Except for the historical information contained herein, the matters discussed in this news release are forward looking statements that involve risks and uncertainties. Potential risks and uncertainties include, without limitation, continued competitive pressures in the marketplace; the effect competitive factors and the Company's reaction to them may have on consumer and business buying decisions with respect to the Company's products; the consequences competitive factors and buying decisions may have on current inventory valuations; the effect of any continued losses on the Company's needs for liquidity; the effect of the announced business restructuring on the future performance of the Company, especially the performance of the Company's employees; and the need for any future restructuring, and the effect that they might have on the performance of the Company. More information on potential factors which could affect the Company's financial results are included in the Company's Form 10-K for the 1995 fiscal year, filed with the SEC.