Apple earnings soar as iPhone shipments revealed

Fueled by strong sales of Macs, third-quarter profit jumps 73 percent; company reports 270,000 iPhones sold in about 30 hours.

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
4 min read
Apple is on a roll, and the company shows no sign of slowing down.

After the close of the stock market Wednesday, Apple reported profits of $818 million, or 92 cents a share, for its fiscal third quarter. That's a 73 percent jump compared with last year, when third-quarter profit was $472 million. It's 9 cents higher than Wall Street was expecting and 26 cents better than the company's own projections. Strong Mac and iPod sales led the charge, but Apple also has a third business these days.

The company reported selling 270,000 iPhones during the 30 hours before the quarter ended on June 30. That's at the upper end of what estimates were going into iPhone weekend, though far below some of the extremely high estimates that surfaced following the launch. Still, some were anticipating a smaller number after AT&T reported activating 146,000 iPhones during the same period.

Apple shares were up $12.26, or nearly 9 percent, to $149.52 in after-hours trading.

Revenue for the quarter was up 24 percent to $5.4 billion, as compared with $4.37 billion for the same period a year ago. That tops Wall Street's expectations of $5.2 billion and Apple's own projections of $5.1 billion.

"I'm pleased to report strong financial results and another landmark quarter for Apple, said Peter Oppenheimer, Apple's chief financial officer, on a conference call following the release of the company's results.

Mac shipments accounted for 60 percent of the company's revenue during the quarter, and grew by 33 percent compared with last year. Apple updated its MacBook and MacBook Pro notebooks during the quarter, and notebook sales were of particular strength. Notebook shipments increased 79 percent compared with last year's third quarter, which was the first period the revamped Intel-based MacBook went on sale.

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Apple CFO on the iPhone Peter Oppenheimer discusses the importance of the iPhone during his company's Q3 earnings results.

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Apple's music business remained healthy, with iPod shipments up to 9.8 million compared with 8.1 million units during the same period a year ago. Still, iPod revenue increased by a much smaller percentage, growing from $1.5 billion last year to $1.57 billion during the third quarter. Apple did not release any new iPods during the quarter, but analysts expect new models by this holiday season.

As predicted, however, the iPhone stole the show. Oppenheimer said Apple now expects to ship its 1 millionth iPhone by the end of September, setting a target for the back-to-school shopping season.

He acknowledged the activation problems experienced by some iPhone customers during the early days of iPhone sales. "We would like to apologize to those customers for a less than perfect experience," Oppenheimer said, noting that most of the problems were fixed during the first week of sales.

The 270,000 iPhones only include units sold to AT&T for distribution in its stores, units sold by Apple through its network of retail stores, and some number of units that might have been in transit as the clock turned on the third quarter, Oppenheimer said. An Apple representative confirmed the number doesn't include online sales of the iPhone during the 30 hours before the quarter ended on June 30.

Oppenheimer confirmed that Apple is receiving payments from AT&T related to the sale of iPhones, but he didn't want to discuss the specifics of the agreement between the two companies. Gene Munster, an analyst with Piper Jaffray, believes AT&T is paying Apple about $11 a month per new iPhone customer, or about $3 a month for existing AT&T customers who switched to the iPhone.

Apple will recognize revenue related to its agreement with AT&T in the company's fourth quarter, which ends in September, Oppenheimer said.

Tim Cook, Apple's chief operating officer, reiterated the company's goal of selling 10 million iPhones by the end of 2008. He also confirmed that the company would have an iPhone for the European market by the end of the year, though he did not specify where it would appear beyond "a few major countries."

"It will not be easy to build in this business, our competitors are large and entrenched," Cook said.

Apple provided its typical conservative guidance for its fourth quarter, to the incredulity of at least one analyst. The company said it expects to record $5.7 billion in revenue and earn 65 cents a share coming off a quarter in which it earned 92 cents a share.

Oppenheimer said he believes Apple's gross margins will be lower in the upcoming quarter because of an "expensive" back-to-school promotion, higher component costs and "product transitions" that he declined to outline. Apple is expected to roll out new iMacs in the coming weeks ahead of the back-to-school season, which is usually one of the busiest times of the year for the PC industry.