iPhone Sales Gives Apple A Boost

Mac sales lag behind expectations, and Steve Jobs is expected to return to Apple closer to the end of June, executives say.
Apple on Wednesday reported that profits in the second fiscal quarter rose by more than 15% as soaring iPhone sales made up for a decline in sales of Mac computers.

During a teleconference with financial analysts, CFO Peter Oppenheimer said chief executive and Apple co-founder Steve Jobs would return to the company at the end of June. Jobs has been on medical leave because of complications following surgery for pancreatic cancer.

"We look forward to Steve's return to Apple at the end of June," Oppenheimer said.

Sales of iPhones in the quarter ended March 31 rose by 123% over the same quarter a year ago to 3.79 million units. IPod sales rose by 3% to 11 million units.

Strong iPhone sales were expected, given the performance of AT&T's wireless division. The telecommunications company, the exclusive seller of the iPhone inside the United States, reported a 13% increase in profits for the division, which added 1.2 million net subscribers. Most of the new subscribers signed a long-term contract to get Apple's iPhone.

In the computer market, Apple wasn't immune from lower consumer and business spending in the economic recession. The company reported that overall sales of Mac computers fell 3% from a year ago to 2.22 million units. The decline was in line with overall PC sales in the United States in the quarter, which fell 3.1%, according to IDC.

Apple's drop in Mac sales was not surprising, given the weakness of the overall PC market. Shipments worldwide fell 7.1% in the first quarter, according to IDC. The only segment to show an increase in sales was for low-cost, portable notebooks, a segment that Apple doesn't compete in. Apple's offerings fit into the higher end of the market.

Apple reported that profits rose to $1.21 billion, or $1.33 a share, compared with $1.05 billion, or $1.16 a share, a year ago. Revenue increased 8.7% to $8.16 billion from $7.51 billion. Gross margins increased to 36.4% from 32.9%.

"We are extremely pleased to report the best nonholiday quarter revenue and earnings in our history," Oppenheimer said in a statement.

Despite the strong quarter, Apple forecast a drop in revenue in the third fiscal quarter. Sales are expected to range from $7.7 billion to $7.9 billion, or 95 cents to $1 a share.

Ezra Gottheil, analyst for Technology Business Research, said Apple's Mac business is suffering from a drop in sales among schools and creative professionals, both major customers. In addition, because entry-level Windows PCs are available for hundreds of dollars less than a Mac, fewer people are making the switch given the current economic downturn.

"People are still interested in a Mac and would like to buy a Mac, but when you're worried about your job and making money, you're likely to say, 'Not this time,' " Gottheil said.

For the second half of the year, Gottheil projects Apple sales in terms of units to be about flat year to year while revenue is expected to decline. That's because Apple customers are buying more of the company's lowest-priced systems.

The iPhone may be your next full-function computer. InformationWeek has published an independent analysis of this topic. Download the report here (registration required).