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IPods lift earnings, revenue at Apple

Demand for the device helps fiscal first-quarter profit rise 78%. But Mac sales miss expectations.

January 18, 2007|Alana Semuels | Times Staff Writer

Holiday shoppers' affinity for the iPod helped Apple Inc. to a 78% increase in fiscal first-quarter earnings, giving the company a welcome distraction from the controversy about the improper awarding of stock options.

Apple's strong results provided some good news for Silicon Valley on Wednesday after tech stocks generally fell in response to disappointing results from Intel Corp., a company often seen as an industry bellwether.

Cupertino, Calif.-based Apple reported net income of $1 billion, or $1.14 a share, in the three months ended Dec. 30, the first quarter in which it has reached that milestone. That compares with $565 million, or 65 cents, a year earlier.

"This puts in perspective how far they've come, and how fast," said Roger Kay, president of Endpoint Technologies Associates Inc. in Wayland, Mass. "It wasn't long ago that their revenues were $1 billion for the year," he said.

The results topped the consensus expectations of analysts, who had predicted earnings of 78 cents a share.

Strong international demand helped the company sell 21 million iPods, compared with 14 million in the year-earlier quarter.

"They surprised themselves and pretty much everyone else in the industry," said Tim Bajarin, president and chief analyst of Creative Strategies, a technology market research firm in Campbell, Calif. "Their growth in iPod sales was spectacular."

At 1.6 million, sales of Macintosh computers were slightly less than Wall Street had anticipated, said Gene Munster, a senior research analyst at Piper Jaffray in Minneapolis. Apple introduced Mac computers with chips from Intel last year, which some analysts had hoped would help drive sales.

Apple has had a strong run in the last four years, as its stock grew rapidly with the introduction of the iPod to the mass market. The company's emphasis on selling to individual customers, as opposed to corporate clients, and on design continues to generate crucial buzz around its products, analysts noted.

Apple posted revenue for the quarter of $7.1 billion, up 24% from $5.7 billion a year earlier.

The company has been in the spotlight in recent weeks amid speculation about Chief Executive Steve Jobs' potential involvement in the questionable timing of stock option grants at Apple. An internal investigation led by former U.S. Vice President Al Gore cleared Jobs of wrongdoing Dec. 29.

Apple drew more welcome attention last week when it unveiled devices including the iPhone, which combines a mobile phone, media player and Internet capability. Shipments will begin in June, and the company hopes to sell 10 million in 2008.

Apple stock fell $2.15, or 2.2%, to $94.95. Despite the strong quarterly report, which was released after the close of regular trading, shares slipped an additional 78 cents in the after-hours session.

Some analysts expressed disappointment in Apple's outlook for revenue of $4.8 billion to $4.9 billion in the current quarter and earnings per share of 54 cents to 56 cents.

Apple will face new pressures beginning Jan. 30, when Microsoft Corp. unveils its Windows Vista software, which might bolster customers' affinity for PCs, analysts said.

And some of Apple's challenges may be self-inflicted: Shoppers might wait to buy iPods until the iPhone comes out, hurting an already slow post-holiday season, said Rob Enderle, principal analyst of Enderle Group in San Jose. The company's iPods captured 72% of the U.S. market in December.

"Apple is facing a period of heavy competition," he said, referring to the MP3 player market, "and they haven't announced any kind of a product refresh."


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