Apple Profit Jumps 530%

Apple Computer blew away Wall Street expectations Wednesday by reporting its second-quarter earnings soared six-fold to $290 million thanks to booming sales of iPods and computers. Revenue rose 70 percent.

Apple earned $0.34 per share on $3.24 billion in sales during the quarter that ended in March. That compared with a profit of $0.07 per share on $1.9 billion in sales in the year-ago quarter. Fifteen analysts polled by First Call had expected the company to report earnings of only $0.24 per share on $3.2 billion in sales.

Apple said it shipped 5.3 million iPods during the quarter, a 558 percent increase from the year-earlier quarter. It also shipped 1.1 million Macintosh computers, up 43 percent from a year ago.

“Apple is firing on all cylinders,” boasted CEO Steve Jobs. CFO Peter Oppenheimer said the company expects $3.25 billion in revenue in its June quarter, with earnings of about $0.28 per share.

Cupertino, California-based Apple said its cash and short-term investments rose to $7.05 billion from $5.46 billion in the year-ago quarter. Gross margins widened to 29.8 percent from 27.8 percent. International sales made up 40 percent of revenue.

The earnings report came out after the market closed Wednesday. Apple shares fell $0.35 to $40.69 in after-hours trading. The shares are below a 52-week high of $45.44 on February 17 but more than triple the low of $12.75 last May.

The company’s quarterly report comes amid a worldwide slowdown of PC sales growth. IDC said last month it expects growth of 9.7 percent in 2005, down from 15 percent in 2004. Worldwide, Apple has just under 1.8 percent of the desktop market and about 2.9 percent of the portable computer market.

Industry watchers have wondered whether Apple could use the success of its iPod digital music players to increase sales of laptops and computers through a “halo effect.”

“The halo effect is real!” said Piper Jaffray analyst Gene Munster. “The quarter was shocking in terms of sales and market share.”

Mr. Munster added that Apple’s desktops and laptops are strong on their own. “People want more out of their computers, like DVD players, and they’re also worried about security and viruses,” he said. “Apple can address those issues.”

But the latest profit increase could be due to one-time factors. “Earnings numbers came in higher than expected because of a one-time benefit in gross margins, from cheaper parts and more accessories sales in their [Apple’s corporate] stores. If you got an iPod under your Christmas tree then you went out and bought speakers for it,” said Mark Stahlman of Caris & Company. “If their gross margins had been normal, at 27 percent, it would have been a 26-cents-a-share quarter.”

As for the increase in shipped computers, Mr. Stahlman said many of those machines are sitting in retailers’ warehouses. “They went from zero to four to six weeks of future sales,” he said. He predicted the company would have “abnormally high margins next quarter” because the new Mac operating system, Tiger, is due to ship out at the end of this month.

The Mac Mini probably accounts for much of warehouse stock. Rolled out in January, “it’s a product basically used to get people interested in the brand,” said Mr. Munster. It’s too early to gauge the Mini’s effect, but the $499 machine may be too low-profit to be worth more than a carrot leading consumers to iMacs, iBooks, and PowerBooks.

Story source: redherring.com.