Apple earnings: 21 million reasons to love the holidays

iPod sales were up 50 percent during Apple's first fiscal quarter, as the company shattered analyst expectations for profit and revenue.

Tom Krazit Former Staff writer, CNET News
Tom Krazit writes about the ever-expanding world of Google, as the most prominent company on the Internet defends its search juggernaut while expanding into nearly anything it thinks possible. He has previously written about Apple, the traditional PC industry, and chip companies. E-mail Tom.
Tom Krazit
3 min read
Apple's past holiday season was definitely filled with joy.

The company reported first-quarter profit of $1 billion as iPod sales increased by 50 percent compared with the same period a year ago, Apple said in a press release Wednesday.

Revenue was $7.1 billion, up about 25 percent from the previous year's first quarter of $5.7 billion. Earnings per share were $1.14, up sharply from the previous year's earnings per share of 65 cents, for Apple's first fiscal quarter ending on December 30.

"Our fiscal year 2007 is off to a tremendous start," Peter Oppenheimer, Apple's chief financial officer, said on a conference call following the company's earnings release.

The results far outdid analyst expectations as tallied by Thomson First Call. The projection was for revenue of $6.4 billion and earnings per share of 78 cents.

Apple provided conservative guidance for its second quarter, however. It said it expects revenue of $4.8 billion to $4.9 billion, and earnings per share of 54 cents to 56 cents. Both ranges are below what analysts were projecting going into the current quarter.

The device has been around for five years, but iPod sales are still going strong, Apple reported. Just over 21 million iPods were purchased during the quarter, compared with 14 million during the previous year's holiday season. Revenue from iPods increased just 18 percent, however, from $2.9 billion to $3.4 billion. Revenue from the iTunes Store was up 29 percent.

Meanwhile, at Apple stores...
One sour spot for iPods was in Apple's retail stores. Both iPod revenue and shipments were down at the company's own stores, but given the overall surge in iPod sales, this reflects the increasing use of channel partners and retailers to carry iPods, said Tim Cook, Apple's chief operating officer.

"iPod demand was extraordinary," Cook said. But that's not expected to last; normal seasonal patterns mean iPod shipments will decline in Apple's second quarter, the first calendar quarter of the year. In September, the company introduced redesigned iPods in its three major categories: the iPod video, iPod Nano, and iPod Shuffle.

On the Mac side, unit shipments increased 28 percent compared with the previous year, and revenue increased by 40 percent. Desktop unit shipments fell, evidence of the same trend toward notebooks that is affecting all PC makers. Accordingly, notebook shipments were up 65 percent and revenue from notebooks was up 79 percent. Portable Macs now account for 60 percent of all Mac sales, Oppenheimer said.

In results published Wednesday, Gartner estimated that Apple's U.S. Mac shipments grew 30.6 percent even as overall U.S. PC shipments declined by 3.2 percent, measured against the same period last year. Shipments to Europe were up 27 percent, but shipments to Japan declined 14 percent amid a tough market for consumer PCs in that country, Cook said.

Apple executives did not offer any new information regarding the stock options backdating scandal that has dogged the company amid its record financial performance and hoopla over the unveiling of the iPhone at Macworld.

The company continues to cooperate with investigators, Oppenheimer said. Apple has said that CEO Steve Jobs was aware that favorable grant dates were selected when awarding options, but an internal investigation has cleared Jobs of any wrongdoing. Outside investigations continue.