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7/20/2010
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Apple Results Beat Estimates

Record iPhone sales, better than expected iPad sales, and strong Mac sales boosted Apple profits 78% in the fiscal third quarter, well ahead of analyst estimates.

Apple profits soared 78% in the fiscal third quarter on big jumps in iPhone and Mac sales and on better-than-expected sales of the iPad.

The consumer electronics company reported Tuesday net income of $3.25 billion, or $3.51 a share, on record revenue of $15.7 billion for the quarter ended June 26, compared to a profit of $1.83 billion, or $2.01 a share, on revenue of $9.73 billion the same period a year ago. Gross margin for the quarter slipped to 39.1% from 40.9% a year ago. International sales accounted for 52% of revenue.

Apple's latest revenue and earnings sailed past Wall Street analyst estimates of $2.85 billion in net income, or $3.07 a share, on revenue of $14.62 billion, according to a poll by Thomson Reuters.

"It was a phenomenal quarter that exceeded our expectations all around," Apple chief executive and co-founder Steve Jobs said in statement.

Apple sold 3.47 million Macs during the quarter, which was a company record and a 33% unit increase over a year ago. iPhone sales rose 61% year to year to 8.4 million units. Sales of the iPad, which was released in early April, reached 3.27 million units at the end of the quarter.

iPod sales, meanwhile, continued to slow as customers turned to newer products, such as the iPhone and iPad. Sales of iPods fell 8% from a year ago to 9.41 million units.

Apple chose the June quarter as a period for several major product releases, including the iPad tablet-style computer and a refresh of the MacBook Pro line, the company's top-selling Macs. In mid-June, Apple launched a new version of the Mac Mini, the company's least expensive Mac, and the iPhone 4 shipped June 24.

Within three days, Apple said it sold 1.7 million iPhone 4s, making it the company's most successful product launch. On June 21, the company sold its 3 millionth iPad.

In a conference call with financial analysts, Tim Cook, Apple's chief operating officer, said the company continued to sell iPads and iPhone 4s as quickly as it could make them. In the case of the iPad, which represents a new category of portable entertainment computer, Cook said, "We're absolutely selling every unit we can make and it looks good in every country that we have launched in."

Indeed, market researcher iSuppli on Thursday raised its estimate of the number of iPads Apple would sell this year by 45% to 12.9 million units.

Asked whether the iPad could cannibalize Mac sales, particularly the least expensive systems, Cook said, "It's too early to tell." The COO, however, pointed out that Apple sold a record number of Macs the same quarter it released the iPad. "For us, it's a jaw dropper," Cook said of iPad sales.

During the rest of the year, analysts will be watching whether iPad sales reflect real, long-term demand for a new product category, or whether early sales were driven mostly by die-hard Apple fans. In addition, the iPhone 4 has had lots of bad press from a design flaw in the antenna that has resulted in dropped calls when the user holds the phone in a particular way.

While Apple has never acknowledged that the iPhone 4 is flawed, Jobs last week told a hastily called news conference that the company would offer free covers, called "bumpers," for the iPhone 4. Covering the phone has been shown to prevent the dropped calls.

Asked whether the antenna problem could have an impact on sales, Cook told analysts Tuesday, "We are selling every unit we can make."

In offering his forecast for Apple's current fiscal quarter, Chief Financial Officer Peter Oppenheimer said the company expected revenue of about $18 billion and earnings of about $3.44.

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