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Apple soars on blowout 1Q numbers

    Apple Computer Inc. (Nasdaq: AAPL) shares shot up 14 5/16, or 13 percent, to an all-time high of 120 7/8 Thursday after shattering analysts' estimates in its first quarter.

    In the quarter, Apple pocketed $183 million, or $1.03 a share, on sales of $2.34 billion.

    First Call consensus expected the PC maker to earn 90 cents a share in the quarter.

    On Thursday, several analysts upgraded the stock and raised their earnings estimates.

    CS First Boston analyst Michael Kwatinetz reiterated his "buy" rating and bumped up his fiscal 2000 estimate from $3.25 a share to $3.45 a share.

    Banc of America analyst Kurt King raised his 12-month price target to $145 a share and boosted his fiscal 2000 estimate from $3.25 a share to $3.50.

    SG Cowen analyst Richard Chu raised rating to "buy" from "neutral" and Salomon Smith Barney upgraded the stock from a "market perform" recommendation to a "buy."

    Including a variety of one-time charges and gains, Apple pocketed $178 million, or $1 a share, in the quarter.

    The $2.34 billion in sales represents a 37 percent improvement compared to the year-ago quarter when it earned $123 million, or 78 cents a share, on sales of $1.7 billion.

    iMacs still flying off the shelves

    In the quarter, Apple sold more than 1.37 million units, including more than 700,000 iMacs and 235,000 iBook computers. The 1.37 million units represent a 46 percent improvement from the year-ago quarter.

    "We are delighted that Apple is delivering strong growth on every front -- revenues, profits and units -- and in particular that our unit growth last quarter was 2.5 times higher than the industry average, which leads directly to market share growth," said CEO Steve Jobs in a prepared release. "Apple also continues to deliver the best asset management in the industry, ending the quarter with less than one day of inventory."

    The company also sold 350,000 G4 computers, a strong rebound from the fourth quarter, when Apple couldn't get enough chips to satisfy demand for the new G4s.

    Apple exited the first quarter with positive cash flow from operations of $373 million.

    CFO Fred Anderson said Apple closed the quarter with more than $3.6 billion in cash and short-term investments and more than $5 billion including its investments in inARM and Akamai Technologies.

    Despite all the good news, Apple's gross profit margins actually declined to 25.9 percent from 28.2 percent in the year-ago quarter. During a conference call with analysts, Anderson cited three reasons for lower margins:

    • Higher-than-expected prices for components, especially DRAM chips

    • Increased air freight expenses as the company rushed to get products into the sales channel before the holiday buying season.

    • Lower-than-expected sales for MacOS 9.

    Sales and earnings well above analyst estimates

    PaineWebber analyst Don Young was predicting a profit of 92 cents a share on sales of around $2.1 billion.

    "The supply constraint issue will be one of the focal points for the December quarter," Young wrote in a research note. "Apple was hindered by supply shortages in its last quarter."

    Those shortages of G4 processors weren't as evident in the first quarter. "We were incredibly pleased with our G4s rebounding," Anderson told analysts.

    Last quarter, Apple beat lowered analysts' estimates, earning $90 million, or 51 cents a share, on sales of $1.34 billion.

    While Apple shares immediately retreated, company officials were quick to point out that although the fourth-quarter sales and earnings would be lower than expected, the company still had a huge backlog heading into the first quarter.

    At the time, Anderson said Apple now had an order backlog of more than $700 million.

    "Next quarter will be the first in which we will have all four product families" in full production, Anderson said in October. "Units shipped and revenue will be up significantly from the prior and year-ago quarter quarters."

    And so they were.

    CS First Boston analyst Michael Kwatinetz recently raised Apple's first quarter earnings estimate to 91 cents a share from 88 cents a share, and reiterated his "buy" rating on the stock.

    Kwatinetz also raised his revenue forecast to $2.05 billion from $1.99 billion and said there was a possibility of further upside as units appear to have been better than forecast. Annual revenue forecasts were also raised to $7.7 billion from $7.6 billion and fiscal 2000 earnings forecast to $3.25 a share from $3.20 a share.

    Apple's momentum keeps building

    In the fourth quarter, international sales accounted for 51 percent of total sales in the quarter, highlighting the popularity of its signature iMac product in Japan and throughout the Pacific Rim.

    Earlier this month, Apple also announced its long-awaited Internet service provider plan, choosing EarthLink (Nasdaq: ELNK) as the exclusive ISP in Apple's new-computer set-up software. Apple, according to the terms of the pact, will also sink $200 million into the ISP and receive a seat on the EarthLink board.

    The Earthlink deal should generate $25 million to $35 million of gross profit over the next 12 months, Anderson told analysts Wednesday.

    Steve Jobs also announced that he would no longer carry the interim CEO tag and he unveiled the Mac OS X operating system, a new version of the software that runs Macintosh computers. The system will be preloaded on all of Apple's machines a year from now.

    Perks for Jobs

    Apple's board of directors unanimously voted to grant Jobs the option to buy 10 million shares of Apple stock and gave him a Gulfstream V jet in recognition of the turnaround he has helped orchestrate.

    "Apple's market cap has risen from less than $2 billion to over $16 billion under Steve's leadership since his return to the Company two and a half years ago," said board member Ed Woolard in a prepared release. "Steve has taken no compensation thus far, and we are therefore delighted to give him this airplane in appreciation of the great job he has done for our shareholders during this period."

    Jobs will continue to draw his regular salary of $1 a year.

    Apple shares moved up to a 52-week high of 118 in December after falling to a low of 32 in March.

    Sixteen of the 24 analysts following the stock maintain either a "buy" or "strong buy" recommendation.

    First Call consensus expects Apple to earn $3.21 a share in the fiscal year. During Wednesdnay's conference call, Anderson said he expects strong unit and revenue growth for the rest of fiscal 2000. Apple is aiming for gross margins above 25 percent and operating expenses at about 19 percent for the year.

    -- Sergio G. Non contributed to this report.