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Apple beats expectations on lower profit

Buoyed by a rise in sales, Apple Computer on Wednesday reported third-quarter results that exceeded expectations, although its profit was down from a year ago.

Ina Fried Former Staff writer, CNET News
During her years at CNET News, Ina Fried changed beats several times, changed genders once, and covered both of the Pirates of Silicon Valley.
Ina Fried
4 min read
Buoyed by its strongest sales in almost three years, Apple Computer on Wednesday reported third-quarter results that exceeded expectations, although profits were down from a year ago.

For the three months ended June 28, the Mac maker said it earned $19 million, or 5 cents per share, on revenue of $1.54 billion. That compares with earnings of $32 million, or 9 cents per share, and revenue of $1.43 billion in the same period a year ago. The earnings were posted to the Securities and Exchange Commission's Web site as part of a regulatory filing on Wednesday, ahead of Apple's official press release.

Analysts had been expecting a profit of 3 cents a share, with revenue of $1.5 billion, according to First Call. In April, Apple projected a "slight profit" for the June quarter with revenue roughly flat with the $1.47 billion it had in the March quarter.

"We are very proud to have exceeded our revenue target for the third quarter despite the difficult economic backdrop," Fred Anderson, Apple's chief financial officer, said in a statement.

Analysts had been expecting a rise in sales, with a consensus prediction of earnings coming in at 6 cents per share and revenue of $1.6 billion for the current quarter, which runs through the end of September.

Apple CFO Fred Anderson estimated that Apple's revenue in the current quarter will show a percentage increase in the "high-single digits" compared to the June quarter, with profits showing only a "slight increase" from the just-ended quarter.

For that quarter, Apple said that it shipped 771,000 Macintoshes, of which a record 46 percent were portable machines. The company also sold 304,000 iPods, a sharp increase from recent quarters.

"Customer response to our new products has been very strong, and this quarter we are focused on delivering Power Mac G5s beginning in August and finishing Panther for release later this year, Apple CEO Steve Jobs said in a statement. Panther is Apple's fourth version of its Mac OS X operating system.

During the quarter, sales of iMacs totaled $301 million, even with the March quarter and down 29 percent from the year-ago quarter. Sales of iBooks were $196 million, up 30 percent from the March period, but down 10 percent from a year ago.

Power Mac G4 sales, which have been weak for several quarters, continued their decline, with third-quarter sales totaling $234 million, down 20 percent from the company's second quarter and 18 percent from a year ago. PowerBook sales were $363 million, up 3 percent from the March quarter and up 55 percent from a year earlier. Peripherals and other hardware accounted for $285 million, while software and other sales totaled $166 million.

As for online music sales, Anderson said that despite the start-up costs for the service, "We were very close to breakeven in the first quarter of the iTunes music store."

The company sold 5 million songs through the end of the June quarter and has sold 6.5 million tracks to date, though Anderson would not comment on how much Apple makes from each song. A version of iTunes and the music store for Windows is still slated for release by the end of the year, he said, which could substantially boost music sales and other Apple gear. "We think it will be a Trojan horse even more for people buying our iPods," he said.

Apple's retail outlets accounted for $145 million of the Cupertino, Calif., company's revenue, up from $135 million in the March quarter, and $63 million a year ago.

The company said its recent results were aided by a rebound in education sales, which had been slumping. For the quarter, Apple's unit sales to schools rose 5 percent from a year ago, Anderson said, compared with the overall decline previously forecast for the education market.

Although overall profits were down from a year ago, the company's operating results were better than a quarter ago, Anderson said, when the company turned a profit only because of the interest on its $4.5 billion in cash. "It was the first time in a few quarters we were making money in our operating line," Anderson said.

For the current quarter, Apple is forecasting a boost from the Power Mac G5, but Anderson said it was unclear how far sales of the high-end desktops will revive.

"The question is how much," Anderson said. "I don't think it will rebound to 350,000 (units) a quarter."

Shares of Apple climbed slightly ahead of the earnings report, ending the day of regular trading at $19.87, up 29 cents or just over 1 percent. Shares were at $20.15 in early after-hours trading on Island ECN.