Apple’s Earnings Triple as Revenue Surges 29%
Profit for Apple Computer Inc. more than tripled in its fiscal second quarter as the company’s popular iPod digital music player outsold its Macintosh computers for the first time.
Cupertino, Calif.-based Apple said Wednesday its net income for the quarter ended March 27 was $46 million, or 12 cents a share, compared with $14 million, or 4 cents a share, in the same period last year. Revenue during the three months ended March 27 was $1.91 billion, up 29% from $1.48 billion a year ago.
Chief Financial Officer Fred Anderson told analysts the company would probably see revenue of $1.93 billion in the current quarter and earn 12 to 13 cents a share, well above analysts’ estimates of 9 cents a share. Apple stock, which fell 29 cents to $26.64 in regular Nasdaq trading, surged 9.4%, to $29.15 in after-hours trading following the earnings announcement.
The sale of 807,000 iPods during the quarter -- including the slim new iPod Mini, which was introduced in the U.S. in February -- outstripped the 749,000 Macintosh computers that customers purchased. Revenue from those iPods zoomed to $264 million from $31 million a year ago, and the music players accounted for 14% of total revenue.
But analysts said Apple can’t rely on the popularity of iPods to the exclusion of its computer business. Computers still provided the bulk of the company’s sales, bringing in $1.2 billion in the second quarter.
“We recently put a value on the iPod business of $4 to $7 per share,” Merrill Lynch analyst Steve Milunovich said in a report to investment clients last month. “But Apple needs to succeed in its core PC business.”
IPods have been a driver to get people to buy Mac computers, even prompting some people to drop PCs based on Intel Corp. chips and Microsoft Corp.’s Windows operating system, said Peter Oppenheimer, Apple’s senior vice president of finance.
“We’re hearing anecdotal stories all the time where Windows users have purchased an iPod, used it, then switched to Mac or added a Mac,” he said during a conference call with analysts.
Analysts applauded the approach. “Their strategy is basically to get their foot into the door with iPods, and get ... people to buy Macs,” said Michelle Lin Gutierrez, an analyst in San Francisco with Schwab SoundView Capital Markets. “They’re coming out with great products but continue to lose market share on the PC front, so the iPod is their Trojan horse.”
Rival computer maker Hewlett-Packard Corp. will begin selling the iPod under its own brand name this summer, a development that is expected to fuel more Mac sales.
Oppenheimer noted that the iPod Mini has proven so popular that Apple ran out before the product’s global launch, which was delayed from this month until July.
“It’s exciting because iPod debunked the whole seasonality issue,” Gutierrez said. “I would have thought the Christmas quarter to be strongest.... Then they came in at growth of 10%, which is impressive.”
In addition, Oppenheimer said Apple’s year-old iTunes Music store turned a slight profit in the quarter, though he declined to give details. The store sells songs mostly for 99 cents each, and albums generally cost $9.99. It has captured 70% of the market for legal downloadable songs, and has sold more than 50 million so far.
“Profitability going forward depends on pricing -- what the labels charge us -- volume, and what we invest to grow the store,” said Oppenheimer, who will take over as chief financial officer in June.
The quarter’s results included a charge of 2 cents a share because of the closure of a manufacturing facility in Sacramento. Most of Apple’s California manufacturing activities will be moved to an unnamed supplier in the southern part of the state. Apple executives declined to say how many jobs would be lost but noted that some employees would remain in Sacramento.
Apple opened five retail stores during the quarter to bring the total to 78, including one overseas in Tokyo. It expects to open 10 more this year including its second and third stores abroad -- in Osaka, Japan, and in London.
