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iPod, iMac Fuel Big 2Q Gains For Apple

Fueled by increased iPod and iMac sales, Apple on Wednesday posted a 70 percent revenue jump and a 530 percent earnings gain year over year for its fiscal 2005 second quarter.
Apple on Wednesday posted a 70 percent sales jump and a 530 percent earnings gain year over year for its fiscal 2005 second quarter ended March 26.

The Cupertino, Calif., computer maker's revenue in the quarter totaled $3.24 billion, compared with $1.91 billion a year earlier. Earnings came in at $290 million, or 34 cents per diluted share, topping a Thomson Financial consensus forecast of 24 cents as well as a high estimate of 30 cents. Apple reported a profit of $46 million, or 6 cents per diluted share, for its fiscal 2004 second quarter.

"These results were driven by strong sales of Macs and iPods," Apple CFO Peter Oppenheimer said late Wednesday during a conference call with financial analysts.

Apple shipped 1.07 million Macintosh computers in its 2005 second quarter, up 43 percent from a year before, as well as 5.31 million iPod music players, which represented a 558 percent increase from the 807,000 iPods sold a year earlier and surpassed the 4.58 million iPods sold in the company's fiscal 2005 first quarter that covers the holiday selling season. The latest iPod sales figures include the new flash memory-based iPod shuffle, which sells for $99 vs. around $300 for the other iPod models, which have a hard drive.

"Our Mac business generated 62 percent of total revenue and was up 27 percent from the year-ago quarter, driven by strong Mac, peripherals and software sales," Oppenheimer said. The total Mac unit shipments in the 2005 second quarter was Apple's highest figure of any quarter in the past four years, he noted.

Many industry observers and solution providers have predicted a "halo effect" of the booming iPod sales possibly lifting Mac computer sales, and Apple's latest quarterly results appear to bear that out--notably for the company's lower-end models.

Year-over-year unit sales of the iMac line, which includes the eMac and new Mac mini desktops, rose 115 percent, and iBook laptops saw a 25 percent unit-sales increase. For higher-end models, the PowerBook notebook line had a 34 percent unit-sales gain, but the Power Mac lineup--including the Xserve product family--saw a 19 percent unit-sales decrease.

Some analysts and VARs have expressed concern that the success of consumer-focused Apple products like the iPod and Mac mini may be overshadowing the profit value of the company's professional product lineup, which includes the Power Mac G5 desktop, the Xserve rackmount server (which also comes in a cluster model) and the Xsan storage system.

When asked earlier this year about the prospects for the Mac mini and the halo effect of the iPod, Sonny Tohan, CEO of Mac Business Solutions, a Gaithersburg, Md.-based Apple specialist, noted that Apple also makes a strong play for business users with its pro lineup.

"Apple's not just about the iPod. Now they're going into the enterprise with their Xsan storage solution. It's like an iPod for high-end storage: easy to use, elegant and at a price point that nobody can touch--not even EMC, HP or Dell," Tohan said. "Nobody can come close to the per-gigabit price performance that Apple is providing, and this storage product is certified not just for Apple but also for Windows, Linux and Sun's Unix. So right out of the box, you're ready to work in the cross-platform environment. And that's where Apple is going to be making money."

"I mean, the iPod is making a lot of noise and Apple is selling a ton of them," Tohan added, "but slowly Apple is trickling into the enterprise market with these high-end products and higher margins."

Apple executives expect to get another sales lift at the end of this month, when the company plans to ship the Mac OS X 10.4 "Tiger" operating system. Both the desktop and the server versions are scheduled for release April 29.

"We are delighted to report a record second quarter for Apple in both revenue and earnings," Apple CEO Steve Jobs said in a statement. "Apple is firing on all cylinders, and we have some incredible new products in the pipeline for the coming year, starting with Mac OS X Tiger later this month."

Apple forecasts sales of $3.25 billion and earnings per diluted share of 28 cents for its fiscal third quarter, according to Oppenheimer. Thomas Financial's consensus earnings estimate for Apple's third quarter is 24 cents per share.