Apple’s earnings leap 70%
Propelled by huge demand for the latest iPhone model, Apple Inc. on Monday posted tremendous increases in earnings and sales as it overtook BlackBerry’s maker in the rankings of smart-phone manufacturers.
The tech juggernaut once again trounced analysts’ expectations for earnings as well as sales, but its stock slumped in after-hours trading because of an unexpected drop in a key measure of profitability.
Still, “the one data point that really jumps out is the stunning iPhone number,” said Yair Reiner, an analyst at Oppenheimer & Co.
Apple sold 14.1 million iPhones in its fiscal fourth quarter, which ended Sept. 25, the first full quarter of sales for the new iPhone 4. That was nearly double the number of iPhones sold in the same period a year earlier and accounted for almost half of Apple’s record overall sales in the period.
Chief Executive Steve Jobs marked the performance with a rare appearance in a conference call with investors, taking the opportunity to taunt Apple’s rivals in the fiercely contested smart-phone market.
Apple’s net income surged 70% in the quarter from a year earlier, coming in at $4.31 billion, or $4.64 a share. Sales shot up 67% to $20.34 billion. Both sales and earnings easily beat analysts’ estimates.
In regular stock-market trading Monday, before the earnings were released, Apple shares climbed $3.26, or 1%, to $318, a record close for the stock.
But the shares sank about 6% to $299 in after-hours trading as investors focused on a sharp decline in Apple’s gross profit as a percentage of revenue, which in turn reflected an unexpected increase in the cost of making the products Apple sells.
Some analysts blamed the latest iPhone. With its flashy glass-and-steel construction, high-end cameras and faster processor, the iPhone 4 is more expensive to produce than its predecessor, even though the price paid by consumers has remained flat.
“The question with Apple and the iPhone is going to be: Are they going to have to add so much to get people to continue to buy it that it’s actually hurting margins?” said Pacific Crest Securities analyst Andy Hargreaves.
Apple also sold 4.19 million iPads, up from 3.3 million in the new tablet device’s debut quarter but less than Wall Street’s collective guess of 4.7 million. The company has said it was straining to produce as many iPads as the market was demanding.
The Cupertino, Calif., company also had its best quarter ever for its Macintosh computers, selling 3.89 million laptop and desktop models.
The number of iPhones sold was up 91% from a year earlier, accounting for $8.8 billion, or nearly 44%, of Apple’s sales in the period. The increase seemed to extinguish concerns that the company lost momentum after problems with the iPhone 4’s antenna emerged shortly after the model’s late-June release.
In the earnings conference call, Jobs trumpeted the fact that the iPhone’s sales easily surpassed the 12 million BlackBerry models sold by rival Research in Motion Ltd. in its latest quarter, which ended in August.
“RIM has a high mountain ahead of them to climb,” Jobs said. “I don’t see them catching up with us in the foreseeable future.”
He also took shots at Google Inc., whose Android operating system is rapidly gaining in the race for smart-phone dominance. Almost 11 million phones running Android were sold in the quarter that ended in June.
Jobs called Google’s strategy for Android a “mess” and assailed the Mountain View, Calif., Internet giant for trying to paint Apple’s products as restrictive and limiting.
“We’ll wait and see if iPhone or Android was the winner in this most recent quarter,” he said.
Android now runs on nearly 100 smart-phone models from most major manufacturers, including Motorola Inc., HTC Corp., LG Electronics Inc. and Samsung Electronics Co.
Apple, in contrast, is the only company to make the iPhone.
Although Google gives away its Android operating system to phone makers, the company said last week that its revenue from mobile advertising on those phones was running close to $1 billion a year -- a substantial sum considering that the search giant marketed its first smart phone only two years ago.
Phones using Android software outsold the iPhone in the first half of 2010, but because Google does not directly profit from sales of those phones, the comparison is, to an extent, of apples and oranges.
When the iPhone 4 was released less than four months ago, many consumers found that the phone’s signal was degraded when it was held in a conventional way. Publicity over the issue led to an apology from Jobs and an offer of a free protective case to all new buyers.
But those who thought the antenna problem was going to be a problem for the iPhone may now be adjusting their perspective.
“Antennagate is firmly in the company’s rearview mirror,” Oppenheimer’s Reiner said.
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