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Apple Rockets Off the Charts on IPod Sales

The computer maker's quarterly profit more than quadruples. Sales of iMacs rise too.

January 13, 2005|Terril Yue Jones | Times Staff Writer

SAN FRANCISCO — The popularity of iPod digital music players helped Apple Computer Inc. blow past Wall Street's expectations Wednesday, when it reported that quarterly profit more than quadrupled.

Its shares rose nearly 12%.

Although strong holiday demand for iPods led Apple's performance, the company said sales of its iMac desktop computers nearly doubled -- lending credibility to Apple's strategy of leveraging iPod to lure customers to its other products.

Even so, some analysts were skeptical that Apple would be able to make significant inroads against titans Dell Inc. and Hewlett-Packard Co., whose PCs run on Microsoft Corp.'s dominant Windows operating system.

Cupertino, Calif.-based Apple reported a profit for its first quarter of $295 million, or 70 cents a share, well ahead of the consensus estimate of 49 cents among financial analysts surveyed by Thomson First Call. Revenue for the quarter that ended Dec. 25 was $3.5 billion.

That compared with profit of $63 million, or 17 cents, on revenue of $2 billion a year earlier.

"Fiscal 2005 is off to a great start," Chief Financial Officer Peter Oppenheimer said during a conference call with analysts.

Apple shares gained 90 cents to close at $65.46 on Nasdaq but surged to $73.50 in late trading after the announcement.

Some analysts said soaring iPod sales -- Apple moved 4.6 million units in the quarter -- were having the "halo effect" of enticing people to buy the personal computers that make up nearly half of Apple's revenue.

"I think with the momentum we saw with iPod, it clearly sent computer sales beyond our expectations," said Steve Lidberg, an analyst with Pacific Crest Securities. "Certainly they're doing it with a great product, but also through the increased visibility they have with the iPod."

Lidberg had been expecting Apple to sell 325,000 iMacs during the quarter, but the computer maker said it sold 456,000, more than twice the 227,000 sold in the same period last year. Overall computer sales rose 26%.

Still, the iPod is Apple's single most popular product. Apple sold more than 10 times as many iPods as iMacs, and the hand-held player contributed nearly twice as much revenue in the quarter.

Apple has tried to capitalize on that by showcasing how iPod can be integrated with its other products at 101 retail stores, said Darcy Travlos, an analyst with brokerage Caris & Co.

"People get exposure to how seamlessly Apple iPods and Apple hardware work, and their interest is piqued," Travlos said. "I thought the iMac numbers would be strong, but not that strong."

Apple executives said they were unable to track the extent to which iPod had driven computer sales.

"We're very pleased with the 26% increase year over year in [computer] sales that could mean we've enjoyed some increase in consideration, but this is hard to measure," Oppenheimer said. "Looking at the back-to-school season, we feel a lot of kids who had good experiences with iPods decided to buy a Mac to take to college with them."

Roger Kay of technology market researcher IDC said it was too early to tell. Apple has less than 2% of the global personal computer market.

"I've been sifting the numbers very finely trying to determine an uptick in any market, and it just isn't visible," Kay said. "The halo effect isn't visible in the data yet."

Apple, though, clearly sees opportunity. At the company's annual MacWorld show this week, Chief Executive Steve Jobs introduced a line of cheaper, slimmed-down iPods that are expected to gain popularity quickly, and a bare-bones iMac computer called the Mac mini that will be sold without a monitor or keyboard.

Those thinking of switching to Mac computers, Jobs said, "have no excuses."

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