Strong sales, margins help Apple beat Street

Fueled by strong product sales and an increase in gross margins, Apple Computer has solidly beated Wall Street estimates for its fiscal third quarter, reporting earnings of $US472 billion.

Analysts polled by Thomson Financial expected Apple would report earnings per share (EPS) of $US0.44 for the quarter, or $US392 billion. The company beat those estimates by $US0.10, though overall revenue for the quarter, at $US4.37 billion, was slightly lower than analysts consensus. Thomson had expected Apple to report revenue of $US4.4 billion for the quarter, which ended July 1. Apple also got help from a slightly lower tax rate during the period.

Gross margins helped drive earnings ahead of expectations. Gross margins for the quarter were 30.3 per cent, an increase over last quarter when margins were 29.9 per cent. Gross margins for the same quarter last year were 29.7 per cent.

Prior to the announcement, Wall Street feared that Apple would meet its own EPS guidance for the quarter but would not meet analysts estimates. Apple had not announced any new products in its iPod line during the quarter. Since analyst sometimes set estimates in anticipation of a boost from new products, particularly Apple's iPods, some believed the company's revenue would be lower than Wall Street expected.

That was not the case, however, and both iPod and computer shipments were up year over year for the quarter. Apple shipped 1,327,000 Macintosh computers and 8,111,000 iPods during the quarter, representing year-over-year growth of 12 per cent and 32 per cent, respectively.

Apple's music business represented 45 per cent of its revenue for the quarter, executives said. Apple's iPod accounts for more than 75 per cent of all digital music players sold worldwide, they said, and the company continued to be enthusiastic about continued success for iPod even as competition in the MP3 player market hotted up.

Recent rumours predict that even Microsoft soon will enter the music-player space with its own competitor to iPod, though the company has yet to confirm this move.

Executives said they expected sales of Apple computers to be strong in the fourth quarter because it was the season when US students returned to school for a new year, and there was typically a boost in computer sales during this time.

"We believe we're well-poised for the back-to-school season," Apple chief operating officer, Tim Cook, said.

Apple expected sales of new Intel processor-based MacBook and MacBook Pro notebooks would do especially well with back-to-school customers in the fourth quarter, he said.

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Elizabeth Montalbano

IDG News Service
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