Apple reports first-quarter profit of $6 billion

IPhones and iPads continue to drive Apple earnings

Apple on Tuesday reported record revenue of US$26.74 billion for its first fiscal quarter, driven by sales of iPhones, Macs and iPads.

Revenue was up 71 percent from the same quarter a year earlier, while profits were up 78 percent to $6 billion, or $6.43 per diluted share, Apple said.

The company sold 4.13 million Macs during the quarter, whichended Dec. 25, up 23 percent year over year. IPhone sales continued at a healthy clip, improving by 86 percent over last year to 16.24 million.

Apple sold 7.33 million iPads during the quarter, an increase of more than 3 million sequentially.

In a statement, CEO Steve Jobs called the holiday quarter "phenomenal," with record Mac, iPhone and iPad sales. Jobs announced Monday that he is taking another medical leave of absence from the company, and Apple executives said no more about his condition on Tuesday's earnings call.

The tablet market has belonged to Apple, but that could change as new tablets running the Android OS hit the market. According to IDC, Apple had an 87.4 percent share of the worldwide market in the third quarter, the most recent that IDC has accounted for. However, growth this year and beyond will come from devices based on Android and other OSes, IDC said.

Nonetheless, Apple claimed to be not too worried about the competition. Some of the tablets on offer are odd sizes, "so you wind up with a scaled-up smartphone, which is a bizarre product in our view," said Apple Chief Operating Officer Tim Cook.

Others have poor battery life or have awkward input methods. "Those are not tablets we have any concern about," he said.

More tablets are expected to hit the market soon, many based on a version of Android designed specifically for tablets. But Apple has a first-mover advantage, including a large App Store, it said. "We're very confident with entering into a fight with anyone," Cook said.

Sales of the iPad could have some negative impact on Mac sales, but Cook isn't concerned about that. "I think there is some cannibalization, but I also think there's a halo effect," he said, meaning that when a person buys one Apple product, they often end up buying additional Apple products.

It would be hard to say the iPad has had a negative impact on Mac sales so far. Cook noted that while the number of Macs sold was up by 23 percent, the overall market for computers grew only 3 percent. In Asia Pacific, Mac sales were up 67 percent, more than 10 times the market growth rate there, he said. In the U.S. and Europe, Mac sales were up by double digits while the overall markets there contracted.

"If this is cannibalization, it feels pretty good," he quipped.

Apple is pleased with the headway it's making into the enterprise. The iPad went on sale in April and is being used or piloted in about 80 percent of Fortune 100 companies, he said. "This is unheard of, at least in my dealings with enterprises over the years," he said. Enterprises are known for a more cautious approach, waiting for new products to be proved in the market before using them.

In addition, Apple reported that 88 percent of the Fortune 100 are now testing or deploying iPhones.

Cook called the consumerization of the enterprise a "megatrend." "I think most forward-looking CIOs are coming to the realization that productivity of the person and creativity of the employee are materially more important than everyone using the same thing," he said.

Apple announced recently that the iPhone 4 will become available to Verizon customers in early February. While there has been debate over how many people will buy the Verizon phone, Apple appears to think sales will be significant. "We believe the reaction and results from Verizon customers will be huge," Cook said.

Apple expects its results for the current quarter to reflect continued growth. It anticipates revenue of $22 billion, compared to $13.5 billion in the same period last year. Earnings per share should be $4.90, the company said.

The earnings report comes a day after Apple announced that CEO Steve Jobs is taking a medical leave of absence. The company did not say how long he'd be away or the specific reason for the leave.

Jobs similarly stepped aside in January 2009 for a six-month period to undergo a liver transplant. That followed surgery in 2004 to remove a cancerous tumor from his pancreas.

How much information Apple should disclose about Jobs' health has been the subject of much debate. The company was criticized for not disclosing that he had a liver transplant until he was well enough to return to work.

While some CEOs have big personalities, Jobs in particular is credited with orchestrating some of the trendsetting technologies that come from Apple. Some people argue that without him, Apple would be a very different company. As such, they say the company has a duty to inform investors about health issues that impact Jobs' ability to lead the company.

The uncertainty about Jobs' condition appears to be concerning investors. Shares of the company were down $20 Tuesday morning, the first day of trading since the news broke of Jobs' leave. However, before the earnings announcement on Tuesday, shares of the company bounced back a bit to be down $5 or 1.4 percent.

Tags business issuesMacmac laptopsPhonesdesktop pcshardware systemssmartphonesfinancial resultslaptopstablet PCsAppleconsumer electronics

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Nancy Gohring

IDG News Service

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