iPod helps Apple earnings sing

Strong sales of the digital music player push second-quarter sales and earnings beyond analyst expectations.

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
3 min read
Aided by continued strong sales of its iPod digital music player, Apple Computer on Wednesday posted second-quarter sales and earnings that topped expectations.

For the quarter ended March 27, the Mac maker said it earned $46 million, or 12 cents per share, on revenue of $1.91 billion. That compares with earnings of $14 million, or 4 cents per share, on revenue of $1.48 billion for the same quarter a year earlier.

Wednesday's results included a restructuring charge of $7 million. Excluding this charge, net profit for the quarter would have been $53 million, or 14 cents per share, well ahead of both analysts' estimates and the company's own forecast.

In January, Apple predicted earnings of 8 cents to 10 cents a share in its second quarter on revenue of $1.8 billion. Analysts were expecting earnings of 10 cents a share on revenue of $1.81 billion on average, according to a survey by earnings tracker Thomson First Call.

The Cupertino, Calif.-based company had another record quarter for its iPod digital music player, selling 807,000 of the devices. It sold 749,000 Mac desktops and laptops, up 5 percent from the same quarter a year earlier.

"Apple had a great quarter, with 29 percent revenue growth and 200 percent earnings-per-share growth, year over year," CEO Steve Jobs said in a statement.

The company also posted a better-than-expected outlook for the current quarter, which ends in June. Apple said it expects earnings per share of about 12 cents to 13 cents, including about 2 cents per share in restructuring charges, on revenue of $1.93 billion.

On a conference call with analysts, Apple controller Peter Oppenheimer said the company expects to open an additional 10 retail stores this year, to end with 88 stores. The company also announced plans for a store in London, which would be the company's second store outside the United States, following one that opened in Tokyo's main shopping district.

As earlier reported, as part of its restructuring, Apple is shutting down its Sacramento, Calif.-based manufacturing line, transferring work to a contractor in Southern California.

Oppenheimer said the company's restructuring charges include both the charges for the Sacramento closure as well as an unspecified amount of cuts in the company's sales and marketing staff.

Merrill Lynch analyst Steven Milunovich was among a number of analysts who suggested in recent weeks that Apple might be able to outdo earnings estimates through strong iPod sales.

"Apple could beat our estimate, based on strong iPod demand and a pick-up in PC sales to the creative market," Milunovich wrote in a research note last week. "Anecdotal evidence suggests some switching to Mac due to the iPod halo effect."

Ahead of its earnings report, Apple shares traded at $26.64, down 29 cents, or about 1 percent.

Apple shares surged in after-hours trading, though, changing hands recently at $29 on the Inet ATS.

Also on its conference call, Apple executives offered details on component shortages that have hampered shipments of the iPod Mini and the Xserve G5.

Apple said the iPod Mini has been in short supply due to the lack of an unspecified component, but the company said it hopes to be caught up to demand by the October-ending quarter. Executives reiterated that Apple is looking into reports of sound problems with the Mini but said that thus far the number of calls to its support lines had been "extremely small."

As for the Xserve, Apple said it was hampered by a shortage of chips from IBM but said it hopes to be caught up to demand by the end of the current quarter. "Obviously we were not happy with the delivery we got," an Apple executive said on the call, adding that "IBM is working very, very hard to bring the supply in line with demand."

The iTunes Music Store posted a small profit for the quarter, but executives would not say how many songs have been sold. The company had earlier said it had sold 50 million tracks but would not update analysts on where it was in relation to its goal of distributing 100 million tunes by the end of this month. Apple said future profitability for the store will depend on a number of factors, including pricing from record labels, sales volume and marketing costs.

The company also noted that it has sold 400,000 copies of its iLife 04 suite, which includes iPhoto, iTunes, iMovie, iDVD and GarageBand.