Apple beats expectations for busy holiday quarter

Net profit for Apple's fiscal first quarter that ended December 27 reached US$1.61 billion, or $1.78 per share.

Apple beat expectations with its financial results for the holiday shopping quarter, a period that treated many consumer electronics companies badly.

The earnings report Wednesday came as Apple faces scrutiny over last week's announcement that CEO Steve Jobs would take a leave of absence for health reasons. Apple executives on the call offered no new information about his condition, however.

Net profit for Apple's fiscal first quarter that ended December 27 reached US$1.61 billion, or $1.78 per share, Apple said. Analysts polled by Thompson Reuters had expected net income of $1.27 billion and earnings per share of $1.39.

The earnings are up just barely from the same quarter last year, when Apple reported a profit of US$1.58 billion and earnings per share of $1.76.

Revenue was US$10.17 billion, compared with $9.6 billion last year.

Apple sold 2.5 million Macintosh computers during the quarter, up 9 percent over last year. IPod sales growth has slowed, though, with 22.7 million sold in the quarter, up just 3 percent.

Both product sectors did better worldwide than in the U.S., where iPod sales actually decreased. Sales of Macintosh computers in the U.S. grew just 2 percent, while sales in several other countries, including Canada and Italy, were up 20 percent, said Tim Cook, Apple's chief operating officer, during a conference call to discuss the results.

Sales of desktop computers declined dramatically, down 25 percent compared to the year before. Cook blamed a particularly strong quarter the year before for dragging down the comparison. He also noted that the global market for desktops declined overall, reflecting a shift toward laptops.

A foray into netbooks to make up for declining desktop sales is unlikely from Apple. Despite success in this market for other companies, Cook maintained that the small keyboards and displays probably won't attract many customers. "It's one to watch and we've got some ideas, but right now we think the products are inferior and will not provide an experience to customers that they are happy with," he said.

IPhone sales continue to grow rapidly. Apple sold 4.4 million of the devices, representing 88 percent growth over the same quarter in 2008.

Cumulatively in 2008, Apple sold 13.7 million iPhones, now available in 70 countries. IPhone users have downloaded over 500 million applications, of which there are now more than 15,000 available in the App Store, Apple said.

Still, Apple is trying to grapple with how to better approach markets that typically don't subsidize handsets. iPhones sales have been lower in countries where operators don't subsidize phones, and thus sell the iPhone for a higher price than many other types of phone, said Cook. "We're constantly evaluating the best way to play in these markets. We know there's a huge market opportunity there and we'll make adjustments in the future accordingly to play in a stronger way," he said.

That doesn't mean Apple plans to alter its basic strategy with the phone. "We're not going to play in the low-end voice phone business," Cook said. "We'll let somebody else do that. Our objective is not to be the unit share leader in cell phones, it's to build the world's best phone."

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Nancy Gohring

IDG News Service
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