January 12, 2005 3:02 PM PST

Apple earnings sail past expectations

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Buoyed by a surge in sales of both iPods and Macintoshes, Apple Computer on Wednesday reported first-quarter earnings that soared past expectations.

The Mac maker earned $295 million, or 70 cents per share, on revenue of $3.49 billion. That compares with earnings of $63 million, or 17 cents per share, on revenue of $2 billion in the same quarter a year ago.

Analysts predicted that Apple would earn 49 cents per share, with revenue of $3.1 billion, according to the average of analysts polled by Thomson First Call.

"We are thrilled to report the highest quarterly revenue and net income in Apple's history," Apple CEO Steve Jobs said in a statement.

Apple's earnings come a day after the company announced lower-price versions of both of its core products--the iPod and the Macintosh.

During the quarter, Apple sold about 4.5 million iPods, up from 733,000 sold during last year's holiday quarter. Hewlett-Packard-branded iPods accounted for about 7 percent of iPod unit sales, Apple said. The company would not provide details on how sales between the iPod, iPod Mini and iPod Photo were split.

Analysts said the new $499 Mac Mini should help the company convert many of those iPod buyers into Mac users.

"We believe the Mac Mini will increase the percentage of iPod-toting Windows users who purchase a Mac by almost threefold," Needham analyst Charles Wolf said in a research note ahead of Wednesday's earnings report.

Mac sales rose significantly last quarter. The company sold 1,046,000 Macs, up 26 percent from last year. Analysts have been projecting a rise for the computer industry as a whole of about 10 percent, meaning that Apple gained a significant share during the quarter. They have been looking for signs that iPod sales are convincing Windows users to buy Macs.

"This is the first real evidence of the 'halo effect,'" Piper Jaffray analyst Gene Munster said in a telephone interview, adding that the arrival

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