Print

Mail

wiki links

Apple reports 73% jump in Q2 profit

Apple Inc on Wednesday reported a 73 percent jump in quarterly profit on strong sales of Macs and iPods, beating Wall Street forecasts. It also alleviated some concerns about early sales of the iPhone.

Investors were spooked on Tuesday when AT&T Inc, which provides service for the phone, said it had activated just 146,000 iPhones in the day and a half between its release and the quarter's end, far fewer than some analysts had expected. That sent Apple's stock down 6 percent.

But Apple executives said on Wednesday that the firm actually sold 270,000 iPhones in that period, a number that seemed to calm investors' fears. The executives said Apple expected to sell 1 million iPhones this quarter, and reiterated its goal of selling 10 million phones by the end of next year. The company plans to release the phone in Europe in the fourth quarter.

"Our view is the starting gun has been fired, and we're off to a great start," said Timothy Cook, Apple's chief operating officer, in a conference call with analysts. "Our primary focus is not on initial sales but on creating a third business for Apple."

By comparison, Apple executives said, it took nearly two years for Apple to sell 1 million iPods.

It is not entirely clear why so many early iPhone customers did not activate their phones right away, but Apple executives acknowledged that many customers experienced activation problems during the first week. Peter Oppenheimer, Apple's chief financial officer, apologized for the problems and said they had been fixed.

Shares of Apple climbed more than 9 percent, or US$12.92, in after-hours trading. They closed at US$137.26, up US$2.37, in regular trading. The gains more than made up for the losses on Tuesday.

Investor excitement over the iPhone's potential has helped boost Apple shares more than 50 percent since the product was announced in January.

The company's profit for the third quarter was US$818 million, or 92 cents a share, up from US$472 million, or 54 cents a share, a year earlier. Analysts had forecast a profit of US$645.6 million, or US$0.72 a share, according to a survey by Thomson Financial.

The company shipped 1.76 million Macs during the quarter, representing 33 percent growth over the year-ago quarter, and 9.82 million iPods, for growth of 21 percent.

"We're thrilled to report the highest June quarter revenue and profit in Apple's history, along with the highest quarterly Mac sales ever," said Steve Jobs, Apple's chief executive.

Apple's revenue for the quarter increased to US$5.41 billion from US$4.37 billion last year, beating Apple's own projection of US$5.1 billion.

Apple has decided to book sales from the iPhone handsets, which cost US$500 or US$600 depending on the model, as subscription revenue over 24 months. The company recognized US$5 million in revenue from the iPhone and related products during the third quarter.

The company's gross margins rose substantially during the third quarter, to 36.9 percent from 30.3 percent in last year's quarter. Oppenheimer said Apple's margins benefited from favorable pricing for components like memory chips.

"The upside was clearly the health of the Mac business," said A.C. Sacconaghi, an analyst with Sanford C. Bernstein & Co. "Apple's in a really attractive position, where the Mac's component prices are falling but they're able to charge the same prices."

Apple issued a conservative forecast for the fourth quarter, predicting revenue of about US$5.7 billion and earnings per share of about US$0.65, as well as a drop in profit margins.

Oppenheimer said the fourth quarter includes the school buying season, in which Apple typically offers costly promotions and sells more lower-margin entry-level Macs. He also said he expected to see component prices rise somewhat during the quarter. Analysts have become accustomed to restrained forecasts from Apple.

"Guidance for Apple has become a throwaway," Sacconaghi said. "They guide conservatively and routinely beat it."
This story has been viewed 845 times.