Apple earnings top estimates

Fueled by continued strong iPod sales, Apple Computer reported fiscal third-quarter earnings and sales that easily topped expectations.

The Mac maker said it earned $320 million, or 37 cents per share, on revenue of $3.52 billion for the three months ended June 30. In the same quarter a year ago, Apple earned $61 million, or 8 cents per share, on revenue of $2.08 billion. Analysts had been expecting the company to report earnings of 31 cents per share, with revenue of $3.34 billion, according to First Call.

Apple's earnings also far outpaced its own predictions. When it reported its last quarterly results in April, Apple forecast it would earn 28 cents per share on revenue of $3.25 billion.

The company sold 1.18 million Macintoshes in the third quarter and 6.16 million iPods.

Mac sales were up 10 percent from the prior quarter and 35 percent from a year earlier. Unit sales of the iPod were up sixfold from a year earlier and 16 percent from the prior quarter. Revenue growth from the iPod was more modest as prices fell and Apple added the Shuffle to its mix, with sales up 343 percent from a year ago and 9 percent from the prior quarter. Apple also saw a boost as Tiger went on sale during the quarter, sending software sales up 44 percent from the prior quarter and 64 percent from a year earlier.

"We are delighted to report Apple's best quarter ever in both revenue and earnings," CEO Steve Jobs said in a statement. "The launch of Mac OS X Tiger has been a tremendous success, and we have more amazing new products in the pipeline."

However, the company's prediction for the coming quarter was slightly less than some analysts had expected. The company said to expect revenue of $3.5 billion and earnings per share of 32 cents. Analysts had been expecting earnings of 33 cents per share and revenue of $3.59 billion, according to the average estimate compiled by First Call.

Piper Jaffray analyst Gene Munster said he thought Apple was being overly cautious in its outlook.

"Apple's guidance is absurd," Munster said. "It assumes no one goes back to school this fall. This guidance defines Apple's conservative nature. Expect upside to the stated guidance."

However, Apple CFO Peter Oppenheimer said on a conference call that the outlook "is prudent as we learn more about the impact of the (Intel) announcement on sales." Apple announced in June it plans to start using Intel chips in Macs.

A key question mark for Apple is whether the company can continue to grow Mac sales or whether business stalls as consumers wait for the first Intel-based Macs, which the company has not promised to deliver before next year.

Apple Executive Vice President Tim Cook said that the company saw "no obvious reduction" in sales following the Intel announcement. "However, we have limited data at this point and we expect to learn more in the quarter."

"While iPod growth rates continue to be impressive, the concern for Apple is what to do when that levels off," said IDC analyst Richard Shim. "They'll need to look for other parts of their business--whether it be their Macs, which iPods were supposed to help but haven't really, or new services, devices or even accessories--to continue the good times for the overall company."

Shim said the move to Intel may hurt Apple in the short run, but could help the company's long-term prospects.

"Initially, there's going to be trepidation regarding the chip architecture and the performance and compatibility of the Mac OS," he said. "However, assuming the transition goes well, the performance headroom and wealth of developer knowledge of the Intel platform could arm Apple well for improved battle readiness in the PC arena."

Apple saw a significant boost in its desktop and server sales, where revenue rose 49 percent from a year earlier and 5 percent from the prior quarter, with unit shipments growing at an even higher rate. Laptop growth was more modest, with revenue up 3 percent from a year earlier and 4 percent from the prior quarter.

Sales from Apple's "other music products" segment, which includes its iTunes Music Store were up 12 percent from the prior quarter, to $241 million. Overall sales through Apple's retail stores were down 3 percent from the prior quarter, to $555 million, though that's still double the level of a year earlier.

Apple shares inched higher ahead of its earnings report, closing regular trading at $38.35, up 11 cents or less than half of 1 percent.