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Apple's Profit Up on IPod, Mac Sales

Earnings rise 27% as the company's music player and new Intel-powered computers boost results.

October 19, 2006|Dawn C. Chmielewski | Times Staff Writer

The i's have it: Intel and iPod helped drive quarterly sales and profit up sharply at Apple Computer Inc. as the company continued to dominate portable entertainment and gained traction against rival computer makers.

Apple's shift this year to chips made by Intel Corp. boosted sales of Macintosh computers to their highest level since the 1999 holiday season. Sales were also helped by a broader shift in the PC industry away from corporate buyers and toward average people.

Those gains gave Apple 6.1% of the U.S. computer market, eclipsing Toshiba Corp. and closing in on Gateway Inc., according to industry researcher Gartner Inc. That's still well behind the 16.3% share of Hewlett-Packard Co., which reclaimed the title of world's biggest PC maker from Dell Inc. on Wednesday.

Apple Chief Operating Officer Tim Cook said the Cupertino, Calif., company was "incredibly pleased with what is a blowout Mac quarter." Overall Mac sales grew at three times IDC Research Inc.'s market growth projections and laptop shipments climbed 56%.

Apple said fiscal fourth-quarter profit rose 27% to $546 million, or 62 cents a share, from $430 million, or 50 cents, a year earlier. Sales increased 32% to $4.84 billion. In the current quarter, which includes the holiday shopping season, Apple projected revenue of $6 billion to $6.2 billion and per-share earnings of 70 to 73 cents.

Its shares climbed $3.35 to $77.88 in late trading after the results were announced. They closed regular trading up 24 cents.

The company cautioned that Wednesday's results were preliminary and could change as a result of its ongoing investigation into the improper accounting of stock options.

Although a 35% increase in iPod sales boosted results -- accounting for 42% of sales -- analysts who have come to expect strong sales of the portable music and video player were encouraged by the robust Macintosh performance.

Apple's Cook said demand was so strong for the new line of Intel-powered iMacs unveiled in September that Apple was forced to air-freight the all-in-one desktop systems to market. Hardware sales were further buoyed by the most successful back-to-school season in the company's history, he said.

Shipments of laptops, especially the popular MacBook, to college-bound students increased 49% over the previous year, fanned by a mail-in rebate for a free iPod nano with the purchase of a qualifying Mac. More than half of buyers at Apple's retail stores are first-time Macintosh owners.

"This is a high, high number of buyers who never owned a Mac in their whole life," said Shaw Wu, an analyst with American Technology Research Inc.

Richard Shim, a personal computer analyst for IDC, said Apple was taking advantage of two trends in the PC industry: the shift to mobility and the surge in consumer spending. Consumers are increasingly moving away from desktop systems and buying laptops. Sales of Apple's MacBook and MacBook Pro surged 56% from a year earlier.

Shim said strong hardware sales helped Apple continue posting higher earnings as the iPod's once triple-digit sales gains slowed. Apple shipped more than 8.7 million of the devices in the last three months. It has sold more than 39 million iPods this fiscal year.

Wu said the brand continued to show resiliency, posting gains even though Apple announced new versions of the players in September and only recently began shipping.

"The new [models] shipped pretty late in the quarter," said Wu. "They had maybe two weeks of sales. Despite that, they were able to post good numbers."


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