July 25, 2007 4:17 PM PDT

Apple earnings soar as iPhone shipments revealed

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.

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8 comments

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I remember when Apple's share price was $14
The industry was predicting the demise of Apple. That was back in the late 90's. But anyone who actually worked with Apple's products knew the company wasn't going anywhere. I didn't have money at the time, but I remember desperately wishing I could buy shares in Apple back then. I would have been rewarded tenfold by now!

I used to sell Apple, IBM and Compaq for authorized dealers back in the 80's and early 90's. Back then, MIS snobs were in love with Intel's 80286 chip and felt the Motorola 68000 chip powering the Macs was inferior, as was the GUI concept. Those same guys had a lot of influence that kept Macs out of businesses in significant numbers.

Apple has always been the industry underdog, even while offering a superior product most times. Today, I am glad to see the company performing admirably.
Posted by mike.gw (942 comments )
Reply Link Flag
analyst
could anyone find that CIBC guy again and get his comments on
iPhone now?
Posted by 1st (104 comments )
Reply Link Flag
More like 40 fold or more
You forget, Apple stock has split several time over the last ten
years so your return would have been way more than 10 fold.
Posted by blackpond (5 comments )
Reply Link Flag
Tom and I were right
Yesterday, the naysayers ignored the fact that the number of
buyers who were able to END in the activation process in the first
two days was what AT&T's 146,000 reflected. Apple's 270,000
confirms that slow activation was a bigger problem than AT&T
previously acknowledged.

Down the road, it will also be necessary to consider the thousands
of sneaky iPhone buyers who choose not to activate the phone.
Posted by J.G. (837 comments )
Reply Link Flag
maybe not
Or alot of people bought the thing to sell on ebay...
Posted by mgbergman (14 comments )
Link Flag
Apple's market cap
Apple currently enjoys a bigger market capitalization than Hewlett
Packard. 127.61 billion vs. 125.03 billion.
Posted by joebuff75 (35 comments )
Reply Link Flag
Pass the Kool-Aid
If Steve Jobs says they'll sell a million iPhones by the end of this quarter, I'd put money on 1.5M to 2M.
Posted by Norseman (1319 comments )
Reply Link Flag
AT&T shinanigans
Bellevue WA:
AT&T stores selling iPhones on the 30 hour crush demanded that:
1. All iPhone customers sign up AND activate all iPhones in their stores prior to leaving. (no do it yourself iTunes option. Selling most expensive AT&T plans as much as possible.)
2. All iPhone customers must buy 2 AT&T iPhone accessories per phone as part of their purchase.
3. AT&T iPhone customer lines moved very very slow as compared to Apple Store iPhone customer lines in same Bellevue Square Mall, because of their "demands."
4. AT&T salespeople were attempting to take customers from Apple line to go to AT&T Store for iPhones.
5. Long delays in activation of iPhone by AT&T (even for current AT&T / Cingular customers...)
AT&T were NOT prepared for the Apple iPhone customer surge at all...
6. Next generation of iPhone should be open to OTHER carriers in USA.
Posted by Llib Setag (951 comments )
Reply Link Flag
 

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