October 18, 2006 1:49 PM PDT

Apple results beat the Street

Apple Computer reported preliminary fiscal fourth-quarter earnings on Wednesday that easily topped analyst's expectations, but warned that its results could change once the company completes a probe into past stock option granting practices.

Buoyed by greater than 30 percent growth in both Mac and iPod sales, the company said it earned $546 million in net quarterly profit, or 62 cents per share, on revenue of $4.84 billion, for the three months ended Sept. 30. That compares to profit of $430 million, or 50 cents per share, on revenue of $3.68 billion for the same quarter a year earlier.

Apple had been expected to report revenue of about $4.7 billion and per-share earnings of 51 cents, according to Thomson First Call.

Shares of Apple surged following the announcement, changing hands recently at $79, up 6 percent. Ahead of the earnings report, Apple shares inched up 24 cents, to $74.53.

"This strong quarter caps an extraordinary year for Apple," Apple CEO Steve Jobs said in a statement. "Looking forward, 2007 is likely to be one of the most exciting new product years in Apple's history."

However, the company offered an outlook for the current quarter that was below what many analysts were projecting. The company said to expect per-share earnings of between 70 cents and 73 cents on revenue of $6 billion to $6.2 billion. Analysts were expecting per-share earnings of 77 cents and revenue of $6.45 billion, according to Thomson First Call.

Apple's financial picture also continues to be clouded by the company's inquiry into stock option dating. Apple cautioned in its release that its "preliminary results may be subject to significant adjustment as a result of a likely restatement of historical results."

Earlier this month, former chief financial officer Fred Anderson resigned as an Apple board member as the company disclosed more details about its investigation of potential backdating of stock options. Apple said that Jobs was aware, in a few instances, that favorable grant dates had been selected. "But he did not receive or otherwise benefit from these grants and was unaware of the accounting implications," the company said in a statement.

Apple said back in June that an internal probe had "discovered irregularities" related to the issuance of stock option grants.

Dozens of companies have launched probes of their accounting practices regarding stock options, and the SEC and federal prosecutors are also looking into the matter. CNET Networks, the publisher of CNET News.com, last week said that an investigation found that, in some instances, the company backdated options. CNET chief executive Shelby Bonnie and two other executives resigned last week.

For the September quarter, Apple said it sold 8.7 million iPods, up 35 percent from a year ago, and 1.61 million Macs, up 30 percent from the same quarter a year ago. The company saw a 4 percent year-over-year increase in desktops, but notebook sales jumped 56 percent as the company got the benefit of its first full quarter of MacBook shipments.

Sales of music-related products and services other than the iPod, including the iTunes store, totaled $452 million. That's up 71 percent from a year earlier, but down 1 percent from the prior quarter. Peripherals and other hardware sales were $297 million, roughly unchanged from a year ago, but up 26 percent compared to the prior quarter. Software, service and Other sales amounted to $316 million, up 7 percent from a year ago and 1 percent from the previous quarter.

Apple's retail stores generated $936 million in revenue, up 41 percent from a year ago and 31 percent from the prior quarter.

Apple shipped 975,000 Macs in the U.S. during the September quarter, according to IDC, putting the company within a stone's throw of nabbing the No. 3 spot from Gateway. IDC analyst Richard Shim said that Apple's market share gains could be only the tip of the iceberg, given that the company has a new operating system coming out next year and it has now moved its entire product line to Intel chips.

"We're kind of getting beyond this notion of a halo effect (from) the iPod," Shim said. "The Mac business can not only stand on its own, but it can start running."

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19 comments

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Apple stock
That's a lot of Macintosh sales for one quarter. Something tells me
they will sell record volumes of product during the upcoming
holiday period, too.

Why did I listen to Michael Dells' dire predictions about Apple? I
should have followed my instincts a few years ago and purchased
stock. The value has more than tripled since then.
Posted by CBSTV (780 comments )
Reply Link Flag
Yes, how fortunes change... look at this chart...
this says it all...

<a class="jive-link-external" href="http://*******.com/zqgl" target="_newWindow">http://*******.com/zqgl</a>

apple is now worth about $10 billion more than dell, with accelerating sales, dell is becoming a white elephant without OSX.
Posted by OS11 (844 comments )
Link Flag
Well done!
Well done!
Posted by CentrOS (126 comments )
Reply Link Flag
Can you focus on quality now?
Ok this is all great. But i strongly believe that the sales will only
climb further if you focus on making quality products and
strengthen the support for its product. And the Pro Care is a
slap in the face to people who expect the pro care quality service
at the first place. I believe that if they are going to implement
pro care, they should just include it in AppleCare. I personally
am already looking at alternative to a Mac. My current macbook
is my third mac now. I am pretty disappointed with the quality
and the slow turn around fix service at Apple store. The slip in
quality is definitely hurting its new customers and giving new
switcher a bad after taste. I seriously hope they apply some sort
of Quality control when they do introduce new phones. Because
not spending money on it will haunt them in the near future. If i
can find a good Linux/Windows combination. I am going to
switch right away.
Posted by hunter_jc (109 comments )
Reply Link Flag
My MBP is fine
My 15" macbook pro has no problems whatsoever and it shipped to me in early March of this year straight from the factory. It is my third mac after I switched in 2002. I'm sorry to hear about your bad experience but the problems are not as widespread as some online forums would lead people to believe.

Maybe I've been lucky but I have not had any major problems with any of the macs I've owned. The only thing that broke on my 12" pbook was the the light on the latch button.
Posted by aristotle_dude (165 comments )
Link Flag
Has QC become a significant issue?
I've read some online accounts of quality control issues, but the
echo chamber of the Internet may exaggerate the volume of
manufacturing defects. Out of all the Apple products I've purchased
since the 1980s, I've had only one (knock on wood) hardware
problem. An Airport Express suddenly stopped working about a
year ago. Apple gave me a free replacement within a few days.
Posted by CBSTV (780 comments )
Link Flag
Has QC become a significant issue?
I've read some online accounts of quality control issues, but the
echo chamber of the Internet may exaggerate the volume of
manufacturing defects. Out of all the Apple products I've purchased
since the 1980s, I've had only one (knock on wood) hardware
problem. An Airport Express suddenly stopped working about a
year ago. Apple gave me a free replacement within a few days.
Posted by CBSTV (780 comments )
Link Flag
Eh?
My PowerMac (dual G5 1.8GHz box) has been ticking along w/o a hitch for two years straight now. The only times I've shut it off was to either move house, go to a LAN Party, or it was shut off via UPS warning during power outages. I also recently shut it off to dust it out a month ago.

I agree that there has been some bumps and grinds in QC here and there - but no company escapes that. But IMHO, Apple has been among the better of them (I work w/ Dell and HP gear at work, and damn; you want low MTBFs? Buy an HP 4-way Opteron server... urgh).

Meanwhile, the only other computer that even comes close to that box in performance is my home-built PC running Fedora - but that's because I did the research and built the box myself out of solid quality parts.

/P
Posted by Penguinisto (5042 comments )
Link Flag
5.8% US Share - Lower Worldwide
To put things into perspective, Apple's Q3-2006 US computer market share is 5.8%, compared to 31% for Dell, and 22% for HP. Worldwide, Apple's current share is in the Others category, below HP, Dell, Lenovo, Acer, and Toshiba. Numbers from IDC.
Posted by john55440 (1020 comments )
Reply Link Flag
IDC v. John
CNET quote ; "Apple shipped 975,000 Macs in the U.S. during the September quarter, according to IDC, putting the company within a stone's throw of nabbing the No. 3 spot from Gateway."

your numbers don't add up...
Posted by Llib Setag (951 comments )
Link Flag
Down but not out
Microsoft has lost a lot of steam in recent years, but the enormous
installed base of Microsoft Windows machines in corporate
environments is enough to sustain the company for a long time to
come. The fact that OS X is superior to MS Windows is not going to
change the personal computer landscape in a significant way
anytime soon.
Posted by CBSTV (780 comments )
Reply Link Flag
Quality is everything
I was a loyal Mac enthusiast for over 3 years and finally switched 'back' after frustration with the quality of repairs w/ my 12" Powerbook and overall quality of the MacBook. After all the frustration, I dumped it all on eBay and bought a PC notebook.

If the Macbook Pro is superior in quality and performance, fantastic, but I shouldn't have to pay twice-the-price of a MacBook or 3x the price of the average PC to get a quality product. I shouldn't have to buy a Lexus when all I need is a Corolla.

I'm glad to see Apple doing well, but I would like to see them focus more on QA/QC instead of profits and new products. If that were the case, their support page wouldn't be full of repair extention programs (iBook G3s, eMacs, iMacs, iMac G5s, etc.). My buddy had an iBook G3 and after 6 logic board replacements in 2 years, he finally threw the thing away and bought a "Dell" (not my first choice). A year later, he's writing his Master's thesis on the Dell.

Anyone who says, "Oh, that's just one machine..." or "You're off topic.." or even "Mine is doing fine..", well, great, that's your opinion and you're certainly entitled to it. However, just as you claim the issue or issues are isolated solely to myself and a select group of others, doesn't mean it doesn't exist or their problems are any less genuine. You should show solidarity instead of resentment or accusation.

Telling people their problems are not realistic, genuine, or irrelevant is a sure-fire way to lose the argument you are trying to make.
Posted by close5828 (230 comments )
Reply Link Flag
 

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