Strong Mac, iPhone sales boost Apple's earnings

Makes US$1.07 billion profit, largely on the back of 717,000 iPhones sales during the quarter.

Apple reported solid third-quarter earnings on Monday, buoyed by strong iPod and iPhone sales, but a weak forecast for the fourth quarter pushed its stock lower in after-hours trading.

Net income for the quarter was US$1.07 billion, up from US$818 million a year earlier. Earnings per share were US$1.19, which beat analyst estimates. Analysts polled by Thomson Financial estimated net income for the quarter ended June 28 to be US$976 million and earnings per share of US$1.08.

Net revenue was US$7.46 billion, beating analyst estimates of US$7.37 billion.

Apple said it expects revenue from the current quarter of US$7.8 billion, which would be up 25 percent year-over-year but is below the analyst consensus estimate of US$8.32 billion. Apple's shares fell 11 percent in the after-hours market to US$148.25.

Executives on the conference call side-stepped a question about CEO Steve Jobs' health, which has been discussed widely since he appeared on stage looking gaunt at the Worldwide Developers Conference in June.

"Steve's health is a private matter," said Tim Cook, Apple's chief operating officer, adding that Jobs has no plans to leave Apple.

The company sold 717,000 iPhones during the quarter, compared to 270,000 a year ago. Macintosh shipments totaled 2.5 million units, up 41 percent year-over-year, with revenue growth of 43 percent. IPod shipments reached 11 million, a 12 percent unit growth and 7 percent year-over-year revenue growth.

Expectations are high for the new iPhone 3G, which launched this quarter and sold 1 million units over the weekend, according to analyst estimates.

"We think we have a real winner with our new iPhone 3G, and we're busy finishing several more wonderful new products to launch in the coming months," Jobs said in a statement.

The response to the iPhone 3G has overwhelmed Apple, causing shortages at carriers worldwide. While it took three days to sell 1 million iPhone 3Gs, it took 74 days to reach that mark with the first-generation iPhone, said Cook. The first iPhone was available only in the U.S., while the 3G version was launched in numerous countries on the same day.

Efforts are being made to ship more phones out quickly to meet the demand, Cook said.

"I will not predict when supply will meet demand," Cook said, adding that he was happy with the rate of production. The company will ship iPhone 3G to 20 additional countries on Aug. 22, Cook said. It is available so far in 22 countries.

Executives also enthused about the new App Store, which launched two days prior to the iPhone 3G. It carries 900 iPhone applications and has registered 25 million downloads since its launch, said Peter Oppenheimer, Apple's chief financial officer.

Apple hopes the App Store will make its iPhone even more attractive, in a similar way that iTunes helped to make its iPod a success.

Apple recognized US$419 million in iPhone-related revenue during the quarter, compared to US$5 million in the same quarter last year.

Macintosh sales accounted for 61 percent of Apple's revenue. Desktop sales grew 49 percent and sales of portables climbed 37 percent, Oppenheimer said. Retail stores accounted for 476,000 of the 2.5 million Macs sold, he added.

Total sales from retail stores grew 58 percent year-over-year to US$1.44 billion.

Apple opened eight new stores during the quarter, including its first in Australia, to reach 216 worldwide. The company will open further stores in Switzerland and Germany and hopes to have 242 by the end of its fiscal year. Apple opened its first store in China last week, in Beijing.

Revenue grew across every major geography, Cook said. It climbed 43 percent in Europe, 40 percent in Japan and 53 percent in the Asia-Pacific region. Revenue in developing markets such as China, Russia and Latin America grew more than 50 percent year-over-year, Cook said.

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Agam Shah

IDG News Service
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