Apple Q1 Profits Almost Double - InformationWeek

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Apple Q1 Profits Almost Double

Apple announced record revenues and earnings on soaring iPhone and iPad sales, but didn't discuss Steve Jobs's medical leave.

Apple reported record revenue and an almost doubling of profits in the first fiscal quarter, as the company sold more than 7 million iPad tablets and increased sales of iPhones by 86%.

In releasing earnings Tuesday, the company did not touch on its Monday announcement that Chief Executive Steve Jobs was taking his third medical leave in seven years.

For the quarter ended Dec. 25, Apple saw profits rise to $6 billion, or $6.43 a share, from $3.38 billion, or $3.67 a share, in the same quarter a year ago. Revenue soared to $26.74 billion from $15.68 billion. Profit and revenue set quarterly records for the company. Gross margin fell to 38.5% from 40.9%.

Apple's results beat Wall Street estimates. "We highlighted this holiday season as one to remember for Apple, and the company did not disappoint," Ticonderoga Securities LLC said in a note to investors.

Peter Oppenheimer, chief financial officer for Apple, during a conference call with analysts that the company sold more iPhones, iPads and Mac computers than any other quarter. The iPad has been available since April.

"We had a phenomenal holiday quarter with record Mac, iPhone and iPad sales," Jobs said in a statement. "We are firing on all cylinders."

In its first fiscal quarter, Apple sold 7.33 million iPad tablets. The momentum of iPad sales placed a serious challenge to the many rivals, such as Samsung, Toshiba and others planning to release tablets running Google's Android operating system or Windows. "The 100 odd tablets announced at the Consumer Electronics Show will have a tough job at trying to compete with it," Carolina Milanesi, analyst for Gartner, told InformationWeek.

Timothy Cook, chief operating officer for Apple, told analysts in the joint call with Oppenheimer that Apple had little competition in the last three quarters of 2010, giving it a big advantage over competitors as the first one to the market. Cook expected Apple to continue to lead, despite the many tablets from rivals expected this year. "We're very, very confident with entering a fight with anyone," he said.

IPhone sales were also strong, with Apple selling 16.24 million units in the quarter, compared to 8.7 million a year ago. Next month, Verizon Wireless is set to begin selling the iPhone, marking the end to AT&T's exclusive contract with Apple. With Verizon offering the smartphone to its more than 90 millions customers, the biggest question was whether Apple could meet demand, given its acknowledgement that it could have sold more iPhones in the quarter, but couldn't make them fast enough.

"We still have a significant backlog, and we're working around the clock to build more," Cook said.

Cook said the iPhone has been getting "enormous traction" in the enterprise market, with more than 80% of Fortune 500 companies either deploying or testing the product. The same was true of the iPad. "I think there's a huge play here for us," he said.

Apple sold 4.13 million Macs in the quarter, a 23% increase from a year ago. Mac sales were nearly eight times higher than the PC market overall, which grew about 3%, Cook said, quoting IDC. Mac sales have beat the overall market for 19 consecutive quarters.

Industry analysts have said that tablets cannibalized sales of laptops in the fourth quarter, as consumers turned to the iPad and the few Android devices in the market. Cook acknowledged that while the iPad could have drawn some customers away from a Mac, sales of the latter were still very strong. "If this is cannibalization, it feels pretty good." he said.

Cook pointed out that Apple had a small share of the global PC market, so cannibalization would impact Windows PC sales more than the Mac. In addition, iPad sales could also produce a "halo effect" by bringing new customers who could look at a Mac when they're ready to buy a personal computer.

The international market accounted for 62% of Apple's sales in the quarters. The Asia Pacific region was particularly strong, led by China, where sales have been "absolutely staggering," Cook said. Sales in China reached $2.6 billion, which was four times the previous quarter and nearly as much as the last fiscal year, when China sales totaled $3 billion. "We're placing more and more resources in this area (Asia Pacific) and continue to look for expansion opportunities," he said.

For the fiscal second quarter ending in March, Apple forecast revenue of about $22 billion and earnings of $4.90 a share. Ticonderoga believed the forecast was conservative. "Keep in mind, Apple generally provides very conservative outlooks and yet this forecast is well above our projection and the Street (Wall Street)," the firm said.

Despite the strong performance, Apple will likely have to address Jobs' absence in the future. The CEO credited with Apple's resurgence over the last decade is seen as such an important force in the company that investors are likely to seek more information. On Tuesday, Apple stock closed down 2.25%, after falling nearly 4% in opening trading following Jobs' announcement.

Jobs on Monday said only that he was taking a medical leave to focus on his health. "I love Apple so much and hope to be back as soon as I can," he said in an email to employees that was released by Apple. Jobs has been battling health problems related to a 2004 operation for pancreatic cancer.

For Further Reading

Steve Jobs Should Be Apple's Last Rock Start CEO.

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