Apple results beat the Street

Buoyed by strong Mac and iPod sales, results sail past expectations. But company's holiday outlook is less rosy than some analysts had hoped.

Apple Computer reported preliminary fiscal fourth-quarter earnings on Wednesday that easily topped analyst's expectations, but warned that its results could change once the company completes a probe into past stock option granting practices.

Buoyed by greater than 30 percent growth in both Mac and iPod sales, the company said it earned $546 million in net quarterly profit, or 62 cents per share, on revenue of $4.84 billion, for the three months ended Sept. 30. That compares to profit of $430 million, or 50 cents per share, on revenue of $3.68 billion for the same quarter a year earlier.

Apple had been expected to report revenue of about $4.7 billion and per-share earnings of 51 cents, according to Thomson First Call.

Shares of Apple surged following the announcement, changing hands recently at $79, up 6 percent. Ahead of the earnings report, Apple shares inched up 24 cents, to $74.53.

"This strong quarter caps an extraordinary year for Apple," Apple CEO Steve Jobs said in a statement. "Looking forward, 2007 is likely to be one of the most exciting new product years in Apple's history."

However, the company offered an outlook for the current quarter that was below what many analysts were projecting. The company said to expect per-share earnings of between 70 cents and 73 cents on revenue of $6 billion to $6.2 billion. Analysts were expecting per-share earnings of 77 cents and revenue of $6.45 billion, according to Thomson First Call.

Apple's financial picture also continues to be clouded by the company's inquiry into stock option dating. Apple cautioned in its release that its "preliminary results may be subject to significant adjustment as a result of a likely restatement of historical results."

Earlier this month, former chief financial officer Fred Anderson resigned as an Apple board member as the company disclosed more details about its investigation of potential backdating of stock options. Apple said that Jobs was aware, in a few instances, that favorable grant dates had been selected. "But he did not receive or otherwise benefit from these grants and was unaware of the accounting implications," the company said in a statement.

Apple said back in June that an internal probe had "discovered irregularities" related to the issuance of stock option grants.

Dozens of companies have launched probes of their accounting practices regarding stock options, and the SEC and federal prosecutors are also looking into the matter. CNET Networks, the publisher of CNET News.com, last week said that an investigation found that, in some instances, the company backdated options. CNET chief executive Shelby Bonnie and two other executives resigned last week.

For the September quarter, Apple said it sold 8.7 million iPods, up 35 percent from a year ago, and 1.61 million Macs, up 30 percent from the same quarter a year ago. The company saw a 4 percent year-over-year increase in desktops, but notebook sales jumped 56 percent as the company got the benefit of its first full quarter of MacBook shipments.

Sales of music-related products and services other than the iPod, including the iTunes store, totaled $452 million. That's up 71 percent from a year earlier, but down 1 percent from the prior quarter. Peripherals and other hardware sales were $297 million, roughly unchanged from a year ago, but up 26 percent compared to the prior quarter. Software, service and Other sales amounted to $316 million, up 7 percent from a year ago and 1 percent from the previous quarter.

Apple's retail stores generated $936 million in revenue, up 41 percent from a year ago and 31 percent from the prior quarter.

Apple shipped 975,000 Macs in the U.S. during the September quarter, according to IDC, putting the company within a stone's throw of nabbing the No. 3 spot from Gateway. IDC analyst Richard Shim said that Apple's market share gains could be only the tip of the iceberg, given that the company has a new operating system coming out next year and it has now moved its entire product line to Intel chips.

"We're kind of getting beyond this notion of a halo effect (from) the iPod," Shim said. "The Mac business can not only stand on its own, but it can start running."

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