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Apple beats Street in holiday quarter; shares soar

January 22, 2009|Dawn C. Chmielewski

Despite a joyless holiday for most retailers, Apple Inc. rang up record quarterly revenue and profit Wednesday after consumers bought surprising quantities of its iPod music player.

Apple posted its strong financial results on the same day that Bloomberg News and the Wall Street Journal reported that the Securities and Exchange Commission had opened an inquiry into how the company disclosed the health troubles of its chief executive, Steve Jobs.

Spokesmen for the SEC and Apple declined to comment on the reports.

Chief Operating Officer Tim Cook, who has taken over day-to-day operations while Jobs is on medical leave to recuperate from an undisclosed medical condition, sought during a conference call with analysts to assure Wall Street that the company would remain strong "regardless of who is in what job."

"We believe we're on the face of this earth to make great products," Cook said. "That's not changing."

For its fiscal first quarter, ended Dec. 27, Apple reported a profit of $1.61 billion, or $1.78 a share, which beat analysts' consensus estimate of $1.39 a share. That's an improvement over the comparable period last year, when profit was $1.58 billion, or $1.76 per share. Revenue rose 6% to $10.2 billion.

The Cupertino, Calif., company's shares rose 6% to $82.83 in regular trading, then another 9.5% to $90.70 after hours.

Investors had worried that the recession would hit all of Apple's three major products: Macintosh computers, iPhones and iPods. And iPod sales did slacken in the first two months of the holiday quarter.

But the device exceeded expectations thanks to a last-minute surge in holiday buying spurred by sales sweeteners, such as iTunes gift cards, thrown in by retailers. Apple said it sold a record 22.7 million iPods, up 3% from a year ago.

"All that growth occurred in the last week of the quarter," Cook said.

Nonetheless, Ezra Gottheil, an analyst with Technology Business Research, said he considered the iPod a "stagnant" business for Apple. Revenue from sales of the device fell 16%. Nearly three out of every four Americans who own a portable music player already have an iPod, and others have selected instead the iPhone, which has a built-in music and video player.

Apple said consumers purchased nearly 4.4 million iPhones -- 37% fewer than in the previous quarter but still a gain of 88% from a year earlier.

Apple has sold 13.7 million units since the iPhone's launch. Analysts remain focused on it as a primary driver of Apple's growth, if the company and its telecommunications partners can strike the right balance of phone price and service fees.

"We continue to believe -- particularly in this challenging consumer spending environment -- that Apple needs lower-priced Macs and iPhones -- or, alternatively, an iPhone that does not require a data plan -- to sustain momentum," Toni Sacconaghi, a senior analyst with Bernstein Research, wrote in a report Tuesday.

Macintosh computer sales rose 9% during a dismal quarter for the PC industry. Sales of Apple's desktop computers dropped 25%, but laptop sales more than offset those declines by rising 34%.

Apple said it expects to earn 90 cents to $1 per share on sales of $7.6 billion to $8 billion for the quarter ending in March. Analysts had been looking for Apple to earn $1.13 per share on $8.2 billion in revenue.



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